0 Report to the Legislature: Survey of U.S. Paper Distributors Regarding Recycled Printing and Writing Papers
JANUARY 1995
State of California Pete Wilson Governor James M. Strock Secretary for Environmental Protection California Environmental Protection Agency California Integrated Waste Management Board Jesse R. Huff Chairman Wesley Chesbro Vice Chairman Sam A. Egigian Janet Gotch Edward G. Heidig Paul Relis Ralph E. Chandler Executive Director Publication #421-95-012 Printed on Recycled Paper
ACKNOWLEDGEMENTS The California Integrated Waste Management Board (the Board) would like to acknowledge the following individuals for their contributions to the Board's survey of U.S. paper distributors: Holly Steel, student assistant at the California Integrated Waste Management Board, for her untiring effort to obtain distributor responses to the survey questionnaire; Phil Bailey, Director of the National Recycling Coalition's Buy Recycled Coalition, for his assistance in developing the survey questionnaire; and Mark Lokovic, Unisource, Los Angeles, for his review of the survey questionnaire. In addition, the Board would like to acknowledge the following individuals and companies for participating in the survey of U.S. paper distributors: R.A. Schmitz, Albert Paper Co; Nelson Bard, Bard Papers, Inc; Fred W. Baumann, Jr., Baumann Paper Co., Inc; Mark B. Herman, Beacon Paper Co; J.R. Glass, Bell Paper Products Co; John Beard, Bunzl Distribution; Charles Argianas, Case Paper Co; Mark Bultema, Central Michigan Paper Co; Tom Green, Century Hobart; Jacob J. Schmidt, Clampitt Park Co; Jerry Dompre, Cole Papers; Thomas S. Corse, Colony Papers, Inc; Charles S. Baron, Connecticut Valley Envelope Co; Richard Jarvis, Cordage Papers; Thomas H. Rose, Jr., Dillard Paper Co; Gary Gabrielson, Dixon Paper Co; Dave Wessline, Dixon Paper Co; Tom Morse, E.A. Morse & Co., Inc; Robert Friedman, Fall River Paper & Supply Corp; P. James Mares, Forest Atwood Paper Co; Milton Perry, Forest Hills Paper Co., Inc; William F. Friend, Friend Paper Products Co; Bill Donohoo, Gibson Group, Inc; Robert Anderson, Gould Paper Corp; Dolores Barker, Hobart-McIntosh Paper Co; Thomas Soeda, HOPACO; Tom Lord, J.C. Paper Co., Inc; Jeffrey Sheppard, Kelly Papers; Roger Nurnberger, Kirk Paper Co; Robert Kolber, Lindenmeyr-Munroe; Gerard St. John, Marquardt/Lewmar Paper Co; James Nicola, Merchants Paper Co; Lawrence Koverman, Millcraft Paper Co; J.M. Croft, Monahan Paper Co; Charles O. Lane, National Sanitary Supply; Larry Kuhn, Nationwide Papers; William Swisher, Nationwide Papers; M.R. Tardiff, Nielsen & Nielsen, Inc; Richard Hart, Olmsted-Kirk Paper Co; William M. Hoyt, Pratt Paper Co; T. Derouin, R.N.I; Jay White, Ris-U.S.A; Greg Camp, Rome Paper Co; Vern Field, Russell-Field Paper Co; Lee Bowers, Schwarz Paper Co; Phillip Knapp, Sr., Snepco, Inc; Chris Ring, Sofco- Mead; Tom Gretler, Source One Supply, Corp; Spiers Paper, Inc; Keith Carroll, Standard Paper Co; Douglas Durand, Susquehanna Paper & Sanitary Supply; Thayer, Inc; Andy Tiff, The Paper Zone; Allen V. Askew, Unisource; Don Brooks, Unisource; John Ewalt, Unisource; Merlin Jespersew, Unisource; Andy Kirkpatrick, Unisource; Joe Marsala, Unisource; Brent McRae, Unisource; Hal Warren, Unisource;
Joseph Wimberger, Unisource; C.O'Conner, Walker-Goulard-Plehn Co; Harry Hartz, Ward-Thompson Paper, Inc; Randy Happy, Zellerbach; Steve Kampsen, Zellerbach; Jerry McKeever, Zellerbach; Fred Robbins, Zellerbach; Craig Rolph, Zellerbach; Jim Travis, Zellerbach.
TABLE OF CONTENTS Executive Summary...i Background...v I Introduction... II Survey Method...4 III Trends in the Recycled Paper Market...6 IV Market Share...10 V Price... VI Quality...26 VII Availability...35 VIII Summary & Conclusions...42 Appendix Item 1: "Estimate of the Percentage of Recycled PWP Produced in the U.S. in 1993"...44 Item 2: "Recycled Paper Survey of U.S. Paper Distributors" (questionnaire from survey)...46 References...52
EXECUTIVE SUMMARY Background This report was prepared to fulfill the requirements of Assembly Bill 1305 (Killea, Statutes of 1989, Chapter 1093). Assembly Bill 1305 required the California Integrated Waste Management Board (the Board) to "conduct a survey of the paper industry to assess the availability of, quality of, and market for all recycled-content papers, including coated groundwood papers and other papers which are not newsprint." The primary objective of the survey was to develop a profile of recycled printing & writing papers (PWP) in the U.S. The long-term goal of the survey was to use the information gained from the survey to effectively target recycled paper market development efforts. The Board's survey focussed only on PWP because it was known that these papers have the greatest potential for increasing the percentage of production that are recycled papers, and one of the primary purposes of the survey was to identify those papers widely used that are typically manufactured with little or no recycled content. The survey gathered information about eight grades of recycled PWP. Five of those grades were groundwood-free -- or "freesheet" -- papers, and three of those grades were groundwoodbased papers. The five grades of free-sheet PWP were bond (non-forms) and copy; forms bond (non-carbonless); coated offset; uncoated offset; and white woven envelope. The three grades of "groundwood" PWP were newsprint; coated groundwood; and uncoated groundwood. Survey Method Board staff chose paper distributors as the survey population. The population was limited to distributors -- rather than including converters and/or paper mills -- because distributors were the most likely group to have all of the information sought about recycled PWP: market share, price, quality, and availability. To identify the survey population, Board staff purchased mailing labels for all U.S. paper distributors from Miller- Freeman, Inc., the publisher of the Lockwood-Post's Directory of the Pulp, Paper and Allied Trades. The Lockwood-Post's Directory includes a section listing U.S. general paper 1
merchants, the same listing from which the mailing labels are generated. Board staff believed this listing to be the most comprehensive and up-to-date available. Staff mailed surveys to 943 listed distributors and made follow-up phone contacts to encourage responses. The calls clearly showed that a large percentage of the list (nearly 2/3) were firms which did not handle PWP or were out of business with no forwarding phone number. The final count of questionnaires received was 70. Findings Distributors' responses were quite varied concerning the market share, price, quality, and availability of recycled PWP. Responses varied both between and within grades. However, there were some consistent response patterns, summarized as follows. Market Share The recycled variety of nearly all eight grades of PWP accounted for a very small percentage of most distributors total PWP sales: in most cases, only between 1-10 percent. A large number of paper distributors did not carry particular recycled PWP grades at all, particularly forms bond, newsprint and white woven envelopes. The small market share of recycled forms bond, white woven envelopes, and other "free-sheet" (groundwood-free) grades of recycled PWP is primarily due to the fact that U.S. production of these papers is substantially less than that of their virgin counterparts. Additionally, some distributors simply did not have inventory space to carry both recycled and virgin varieties of the same grades of paper. The small market share of recycled newsprint indicated by the survey is contrary to the fact that most newsprint produced in the U.S. and Canada does contain some recycled content. The contrary finding is likely explained by distribution methods: most newsprint is sold directly from paper mill to end-user, rather than through paper distributors. Looking to the future, a large majority (73 percent) of the distributors indicated that customer demand for recycled PWP is increasing, and a large percentage (78 percent) of those distributors have specific plans to increase the quantity and variety of the recycled papers that they carry. Price 2
Over 60 percent of distributors indicated that recycled freesheet PWP was more expensive than its non-recycled counterparts, while over 60 percent of distributors indicated that, for recycled newsprint and groundwood grades, there was either no price difference or the price for recycled was lower. The higher price for recycled free-sheet PWP can be largely explained by the low economies of scale for production of these papers. However, there was considerable variation in responses concerning price for both free sheet and newsprint/groundwood grades, and there are many unanswered questions about why such variation existed. The distributors were fairly evenly divided in their opinions of the future trends for recycled PWP prices. While more distributors (34 percent) thought that prices were increasing than thought that prices were decreasing (24 percent), this did not rule out the possibility that recycled PWP prices were decreasing relative to virgin PWP prices. Quality Over fifty percent of distributors felt that, for all but one grade of PWP, there was no significant difference in the quality between recycled and non-recycled varieties (the exception was coated offset). However, for every grade, some distributors cited certain inferior quality characteristics for the recycled variety. Most of these characteristics were purely aesthetic (e.g., high level of ink specks or low brightness), but they were nonetheless perceived as qualities that make recycled PWP inferior to non-recycled. In spite of the numerous inferior quality characteristics cited by the distributors for recycled PWP, most felt that the quality of recycled PWP has improved tremendously in recent years, and is continuing to improve. Availability Most distributors (80 percent) experienced no problems obtaining recycled PWP, but the other 20 percent did experience problems. The greatest problem hindering availability was that recycled PWP was not available in sufficient quantities to meet the orders of distributors. A less pronounced problem was that recycled PWP sometimes took longer to be delivered than was customary for non-recycled PWP. In spite of the problems that many distributors experienced 3
obtaining various grades of recycled PWP, most (80 percent) believe that the future availability of recycled PWP will be adequate to meet their customers' needs. Many distributors noted that recycled PWP production has grown considerably in recent years, and anticipate that this growth will continue. Conclusions Based on the results of the Board's survey of U.S. paper distributors, there is considerable room for growth in the production and distribution of recycled printing & writing papers. It appears that recycled PWP would represent a greater percentage of distributors' overall PWP sales if it was produced in greater quantities. However, higher price, poorer aesthetic quality, and problems with availability (compared to non-recycled papers) all continue to hinder growth of recycled PWP in the overall PWP market. Education of consumers regarding the environmental benefits of recycled paper is critical to increasing demand for recycled PWP. Consumers also need to be encouraged to accept slightly lower aesthetic standards in their PWP (that do not hinder performance), because it is unreasonable to expect recycled PWP to attain the high aesthetic standards of virgin paper. 4
BACKGROUND This report was prepared to fulfill the requirements of Assembly Bill 1305 (Killea, Statutes of 1989, Chapter 1093). Assembly Bill 1305 required the California Integrated Waste Management Board (the Board) to "conduct a survey of the paper industry to assess the availability of, quality of, and market for all recycled-content papers, including coated groundwood papers and other papers which are not newsprint." The primary objective of the survey was to develop a profile of recycled printing & writing papers (PWP) in the U.S. The long-term goal of the survey was to use the information gained from the survey to effectively target recycled paper market development efforts. The Board's survey focussed only on PWP because it was known that these papers have the greatest potential for increasing the percentage of production that are recycled papers, and one of the primary purposes of the survey was to identify those papers widely used that are typically manufactured with little or no recycled content. (The Board gained approval from Senator -- formerly Assemblywoman --Killea, the author of AB 1305, to focus the survey on PWP only.) Furthermore, Board staff reasoned that paper distributors would be more likely to respond to a survey questionnaire that sought information about a focussed group of paper grades. 5
I. INTRODUCTION The survey upon which this report is based gathered information about eight grades of recycled printing & writing paper (PWP). Five of those grades were groundwood-free -- or "free-sheet" -- papers, and three of those grades were groundwood-based papers. (Free-sheet and groundwood papers are described later in this section.) The five grades of free-sheet PWP were bond (non-forms) and copy; forms bond (non-carbonless); coated offset; uncoated offset; and white woven envelope. The three grades of "groundwood" PWP were newsprint; coated groundwood; and uncoated groundwood. Free-sheet PWP Free-sheet papers are those produced from pulp derived from wood fiber by chemical processes. Chemical pulping removes the lignin in wood fiber, and the resultant pulp is typically bleached to attain a bright, white appearance. Dyes are added to chemical pulp to produce colored free-sheet paper. Free-sheet papers are typically smoother than groundwood papers, and are also stronger, due to the preservation of fiber strength in the chemical pulping process. Free-sheet papers are more expensive to produce than groundwood papers, and consequently cost more. Bond paper is high-quality PWP with good surface, strength and formation characteristics; the more expensive bond papers often contain cotton fiber. Copy paper is a type of bond paper, distinguished only by its application in copy machines. Forms bond is paper used for business forms, and is distinguished from carbonless forms bond by lack of the chemical agents that allow for duplicate images without carbon paper. Offset papers are those used in commercial offset presses, and are categorized according to the presence or absence of a coating. Offset papers are distinguished from bond papers by surface finish, opacity, brightness, and bulk. Like with groundwood papers, the coating typically used on offset papers is clay, which gives the paper a smooth, shiny appearance and better printing characteristics. White woven envelopes are simply standard letter envelopes, distinguished from yellow, brown and white kraft mailing envelopes by the type of fiber and paper-making process used 1
to produce them. Common end-uses for the five grades of free-sheet papers covered in the survey are as follows: 1. Bond (non-forms) and Copy - paper used in copy machines, laser-printer paper, letterhead, business forms, typing paper, and writing paper (such as lined tablets and stationery). 2. Forms Bond - single and multi-part business forms such as invoices, sales tickets and charge card drafts. 3. Offset (uncoated) - books, writing tablets, brochures, direct mail, envelopes, (basestock for) carbonless paper. 4. Offset (coated) - miscellaneous commercial printings, catalogs, magazines, direct mail, labels, book publishing, annual reports, and newspaper inserts/coupons. 5. White Woven Envelope - standard letter and legalsize white mailing envelopes. "Woven" refers to the use of woven type wires used in the papermaking process, that produce a very smooth finish. Groundwood PWP Groundwood papers are those produced from pulp derived from wood fibers by a mechanical process that grinds the wood fibers (hence the name "groundwood"). The mechanical pulping process does not remove the lignin from the wood fiber, which is what causes newspapers to yellow when exposed to sunlight. Groundwood papers typically have a light brown color (unless bleached or dyed), have a rougher surface than free-sheet papers (when uncoated), and are generally weaker than freesheet papers. Groundwood papers are less expensive to produce than free-sheet papers, and consequently are less expensive to purchase. Newsprint, like coated and uncoated groundwood papers, is primarily produced from groundwood pulp. However, newsprint is generally categorized separately from groundwood papers due to distinctions such as lower brightness, lack of sizing agents (that improve smoothness and other surface characteristics), and lower percentage of chemical pulp (if 2
any). Non-newsprint groundwood papers are categorized according to the presence or absence of a coating. The coating typically used on groundwood papers is clay, which gives the paper a smooth, shiny appearance (like with many magazines) and better printing characteristics. Common end-uses for the three grades of groundwood papers covered in the survey are as follows, in descending order of market share: 1. Newsprint - newspapers (by far the most common enduse), newspaper inserts, and advertising circulars. Legislative bills and voter election information publications are also printed on newsprint. 2. Uncoated groundwood - direct-mail advertising circulars, directory paper (as is used in phone books), paperback books, periodicals and newspaper supplements (e.g., Parade magazine), catalogs, and business papers (such as forms and computer paper). 3. Coated groundwood - magazines (by far the most common end-use), catalogs, coupons and other newspaper inserts, miscellaneous commercial printing, book publishing, and direct mail. 3
II. SURVEY METHOD Board staff chose paper distributors as the survey population. The population was limited to distributors -- rather than including converters and/or paper mills -- because distributors were the most likely group to have all of the information sought about recycled PWP: market share, price, quality, and availability. Board staff designed a questionnaire (see Appendix) to obtain information about market share, price, quality, and availability of the eight selected PWP grades carried by paper distributors. Staff chose recycled bond and copy, forms bond (non-carbonless), uncoated offset, coated offset, and white woven envelope to be included in the questionnaire because they are the five free-sheet grades with the highest production levels in the U.S. (as identified in the Pulp & Paper 1994 North American Factbook). Staff chose uncoated and coated groundwood grades and newsprint to be included in the questionnaire both because AB 1305 specified that they be included in the survey, and because they are among the eight paper grades with the highest production levels in the U.S. To identify the survey population, Board staff purchased mailing labels for all U.S. paper distributors from Miller- Freeman, Inc., the publisher of the Lockwood-Post's Directory of the Pulp, Paper and Allied Trades. The Lockwood-Post's Directory includes a section listing U.S. general paper merchants, the same listing from which the mailing labels are generated. Board staff believed this listing to be the most comprehensive and up-to-date available. With assistance from staff in the Board's Plan Implementation Branch and Economic Forecasting Branch, it was determined that 100 questionnaire responses comprise a statistically representative sample of the overall survey population. It was anticipated that a 21 percent response rate could be achieved, so, based on this information, staff decided to mail a questionnaire to one out of every five of the 2350 mailing labels, or 472 questionnaires total. To generate a random sample of the distributors, Board staff numbered each of the mailing labels, and used every fifth label to mail a questionnaire. Because the labels were ordered geographically (numerically by zipcode), selecting every fifth mailing label ensured a geographically stratified 4
mailing sample. Ideally, the sample would have been stratified according to the sales volume of the distributors, but this information was not available to staff. Board staff mailed the 472 questionnaires on August 2, 1994. The cover letter accompanying the questionnaire requested that the distributors return the questionnaire by August 19, 1994. By September 14, 1994, staff had received only about 30 questionnaires from the distributors. It was apparent that additional effort was necessary to elicit the 100 necessary survey respondents, and so staff commenced to make follow-up phone calls and to fax duplicate questionnaires to nonrespondents. After over two weeks of making follow-up phone calls and faxing over 100 duplicate questionnaires, only about 15 duplicate questionnaires had been returned. At this point, it was determined that obtaining 100 completed questionnaires from the original mailing was unrealistic, so staff mailed 471 additional questionnaires to a new random sample from the remaining 1878 non-surveyed U.S paper merchants. The response to the second mailing of questionnaires was even worse than the first: after two weeks, fewer than 20 completed questionnaires had been received. This poor response influenced staff to evaluate the overall survey population for applicability to the paper grades covered in the questionnaire. During follow-up phone calls, it became apparent that a large number of the paper merchants listed on the mailing labels did not actually handle PWP, but rather were distributors of packaging papers or sanitary papers. In addition, a number of the listings were out-of-business, with no forwarding phone number. Staff counted the number of paper merchants that either did not handle PWP or were out of business, and the number was striking: fully 2/3 of the merchants fit one of these two categories. With so many paper merchants not actively distributing PWP, the survey population was reduced to 1/3 of its original size; therefore, the statistically representative sample size became considerably smaller, as well. Board staff from the Economic Forecasting Branch estimated that a sample size of 50 would be statistically adequate for the new, reduced population size. By this point, about 65 questionnaires had been received, so staff ceased the questionnaire phase of the survey. The final count of 5
questionnaires received was 70. 6
III. TRENDS IN THE RECYCLED PAPER MARKET The survey questionnaire asked distributors to state their opinions about the trends in market share, price, quality and availability of recycled (printing & writing) paper. (See Page 2 of the questionnaire in Appendix.) Following are the general responses to the questions from the "Trends" section, the percentage of distributors that responded to each question, and notable comments. A. Market Share Overall, most paper distributors reported that customer demand for recycled paper is increasing, and that their companies have specific plans to increase the quantity and variety of the recycled papers that they carry. There were three major themes among the responses. One theme was that government agencies have been, and still are, primarily responsible for driving recycled paper demand. A second theme was that many mills were producing certain paper products in both recycled and virgin varieties, which forced some distributors to choose between the two, due to inventory restrictions. A third theme was that many companies have already increased their inventory of recycled paper to the extent practical. The "Market Share" question asked: "Based on your sales experience, customer demand for recycled paper is a) increasing; b) decreasing; or c) remaining stable." The vast majority of distributors (73 percent) indicated that customer demand for recycled paper is increasing; 24 percent of distributors indicated that demand was remaining stable; and 3 percent indicated that demand was decreasing. The questionnaire also asked, for those distributors that believed customer demand for recycled paper was increasing, if their company had specific plans to increase the quantity and variety of recycled paper that they carry. To this question, 78 percent replied yes, while 22 percent replied no. Following are some notable comments on the market share questions, grouped by the category of response. Market Share Increasing "State and county government agencies have been the most frequent requestors of recycled paper." 7
"Increasing availability of recycled papers has stimulated increased demand." "Now that the price differential between recycled and virgin paper is down, recycled is more popular." "Customers in the midwest seem to be a little behind the west coast as far as demanding recycled paper is concerned." Market Share Remaining Stable "Recycled paper is no longer the "buzzword" that it was 2-3 years ago -- almost all new text & cover, bond and writing grades seem to be recycled." Plan to Increase Recycled Paper Inventory "Where both recycled & virgin paper are available (in the same grade), we plan to stock only recycled." "We are trying to get feedback from our non-government customer base (before increasing recycled stock) -- cost is an issue." "Many mills carry the same product in both virgin & recycled varieties; we will likely drop the virgin varieties as stock items." "(We would like to stock more recycled paper, but) we can't afford to duplicate virgin stock." B. Price The responses about the direction of recycled paper prices were extremely varied. Most distributors (40 percent) felt that recycled paper prices were remaining stable, although a near-equal number of distributors (34 percent) felt that prices were increasing. Twenty-six percent felt that prices for recycled paper were decreasing. Many distributors who stated that recycled paper prices were increasing also noted that all paper prices were increasing; therefore, it was possible that recycled paper prices were decreasing or holding stable relative to virgin paper prices. In fact, two distributors who indicated that recycled paper prices were increasing actually stated that they were decreasing relative to virgin prices. The information obtained from the survey on recycled paper prices would have been more valuable had the questionnaire asked "Is the price for recycled paper relative to virgin paper going up, down, or remaining stable?" As it appeared in 8
the questionnaire, the question about recycled paper price read: "Based on your sales experience, the price for recycled paper, in general, is a) decreasing; b)increasing; or c) remaining stable. Some distributors noted a cause/effect between price and demand: one stated that demand had increased since prices had fallen; one stated that customer demand was increasing even though prices had risen; and one stated that demand had decreased since prices had risen. At least one distributor noted a cause/effect between demand and price of recycled paper: this individual felt that recent growth in customer demand had made recycled paper more difficult to obtain, and therefore driven up the price. One distributor who indicated that recycled paper prices were increasing noted that the increases were primarily due to the increased price of recovered paper feedstock. Indeed, the first six months of 1994 recorded some of the highest prices ever for certain grades of recovered paper, and prices for high-grade deinking -- a grade used to make recycled PWP -- were rising dramatically during the period the questionnaires were mailed and returned. C. Quality The question of recycled paper quality elicited the greatest consensus among distributors: the vast majority indicated that recycled paper quality is improving (83 percent) or is remaining stable (16 percent). Many distributors noted that recycled paper has already made considerable advances in quality; one distributor stated that the quality of today's recycled papers is "light years" ahead of their predecessors. The fact that some distributors have chosen to stock only the recycled variety of a paper product that is produced in both recycled and virgin varieties attests to the confidence that these distributors have in the quality of the recycled product. In spite of the nearly unanimous sentiment that recycled paper quality has improved or is improving, a number of distributors indicated that quality problems still exist with recycled paper. Chapter VI, "Quality", discusses these problems, as well as some superior quality characteristics of recycled paper. 9
D. Availability Most distributors (80 percent) believed that the availability of recycled paper(both in terms of quantity and timeliness of delivery) would be adequate to meet the near-term demand by their customers. However, even some of those that believed that recycled papers would be adequately available in the short-term expressed concern that supply might run short in the long-term. One distributor who believed that the availability of recycled paper would be adequate in the near-term noted that there are more high-grade deinking plants coming on-line; this is certainly true. An article in the September 1994 issue of Paper Recycler identified 24 proposed deinked market pulp 1 projects scheduled to start-up between August 1995 and mid- 1996. The combined annual production capacity of these projects is 7,370,000 tons. While it is inevitable that not all of the proposed projects will become actual projects, the large number of proposed projects indicates the strong interest of paper companies to increase their production of recycled PWP. The remaining 20 percent of distributors expressed doubt that recycled paper supply would keep up with demand. Most of the concerns with availability of recycled paper centered on the specialty grades, such as coated bleached bristols (used for products like glossy folders) and colored copier paper. One distributor who questioned near-term availability noted that postconsumer recovered paper is difficult for some mills to obtain, and the increase in recovered paper prices would not make it any easier for these mills to compete for this paper, thus limiting production and availability of recycled paper. A number of distributors indicated difficulty at present obtaining certain grades of recycled paper. Chapter VII, "Availability", discusses these problems in detail. 1 Deinked market pulp is pulp made from recovered paper (usually office paper) that has had the ink removed, and which is then sold "on the market" to paper mills which (typically) produce recycled PWP or tissue. 10
IV: MARKET SHARE The purpose of gathering information about market share was to develop a profile of PWP produced as recycled paper. It was assumed that where distributors sold a paper grade primarily as recycled papers, it would indicate that paper manufacturers are producing a large percentage of that grade as recycled paper. Conversely, it was assumed that where distributors sold little of a paper grade as recycled paper, it would indicate that paper manufacturers are producing a very small percentage of that grade as a recycled product. Distributors were asked to complete a table indicating the percentage of specific grades of PWP sold in 1993 that were recycled paper 2. (See questionnaire, Table 1, Page 3, in Appendix.) As with the other three tables in the questionnaire, Table 1 sought information about eight grades of PWP: bond (non-forms) & copy; forms bond (non-carbonless); coated offset; uncoated offset; white woven envelope; newsprint; coated groundwood; and uncoated groundwood. The following are the results from the questionnaires. Note that not all 70 distributors who returned a questionnaire necessarily carried each of the paper grades listed on the questionnaire, nor did all of the distributors necessarily complete each of the questionnaire tables. Thus, the "percentage of distributors" mentioned for each grade refers to the percentage of distributors that responded to the questions for that grade. Bond (non-forms) & Copy - The greatest percentage of distributors (50 percent)indicated that between 1-10% of their bond and copy paper sold was recycled paper; 19 percent indicated 11-25% was recycled paper; 11.5 percent indicated that 0% was recycled paper; 11.5 percent indicated 26-50% was recycled paper; 4 percent indicated 51-75% was recycled paper; 4 percent indicated 76-99% was recycled paper; and no distributors indicated that 100% of their bond and copy paper sold was recycled paper. (See Chart 4-A, next page.) 2 "Recycled paper", for the purpose of the survey, was defined as any paper containing at least 10% postconsumer material, by total weight of the product. This is the definition that applies to paper marketed to non-governmental consumers in California, and is cited in the California Business & Professions Code Section 17508.5. 11
Forms Bond (non-carbonless) The greatest percentage of distributors (47 percent) indicated that between 1-10% of their forms bond sold was recycled paper; 42 percent indicated that 0% was recycled paper; nine percent indicated that 11-25% was recycled paper; two percent indicated that 26-50% was recycled paper; and no distributors indicated that between 51-100% of their forms bond sold was recycled paper. (See Chart 4-B, next page.) Offset (uncoated) - The greatest percentage of distributors 56 percent) indicated that between 1-10% of their uncoated offset sold was recycled paper; 26 percent indicated that 11-25% was recycled paper; 7 percent indicated that 0% was recycled paper; 5 percent indicated that 51-75% was recycled paper; 4% indicated that 26-50% was recycled paper; 2 percent indicated that 76-99% was recycled paper; and no distributors indicated that 100% of their uncoated offset sold was recycled paper. (See Chart 4-C, next page.) 12
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Offset (coated) - The greatest percentage of distributors (47 percent) indicated that between 1-10% of their coated offset paper sold was recycled paper; 31 percent indicated that 11-25% was recycled paper; 10 percent indicated that 0% was recycled paper; 6 percent indicated that 26-50% was recycled paper; 6 percent indicated that 76-99% was recycled paper; and no distributors indicated that either 51-75% or 100% of their coated offset paper sold was recycled paper. (See Chart 4-D, below.) Envelope (white woven) - The greatest percentage of distributors (54 percent) indicated that between 1-10% of their white woven envelopes sold were made from recycled paper; 28 percent indicated that 0% were made from recycled paper; 7.5 percent indicated that 11-25% were made from recycled paper; 3.5 percent indicated that 26-50% were made from recycled paper; 3.5 percent indicated that 51-75% were made from recycled paper; 3.5 percent indicated that 76-99% were made from recycled paper; and no distributors indicated that 100% of their white woven envelopes sold were made from recycled paper. (See Chart 4-E, next page.) Newsprint - The greatest percentage of distributors (46.5 percent) indicated that 0% of their newsprint sold was recycled paper; 25 percent indicated that 1-10% was recycled paper; 18 percent indicated that 26-50% was recycled paper; 14
3.5% indicated that 11-25% was recycled paper; 3.5% indicated that 51-75% was recycled paper; 3.5% indicated that 76-99% was recycled paper; and no distributors indicated that 100% of their newsprint sold was recycled paper. (See Chart 4-F, next page.) 15
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Groundwood (uncoated) - The greatest percentage of distributors (50 percent) indicated that 1-10% of their uncoated groundwood paper sold was recycled paper; 26.5 percent indicated that 0% was recycled paper; 9 percent indicated that 11-25% was recycled paper; 6 percent indicated that 51-75% was recycled paper; 6 percent indicated that 76-99% was recycled paper; 3 percent indicated that 26-50% was recycled paper; and no distributors indicated that 100% of their uncoated groundwood paper sold was recycled paper. (See Chart 4-G, below.) Groundwood (coated) - The greatest percentage of distributors (50 percent) indicated that 1-10% of their coated groundwood paper sold was recycled paper; 25 percent indicated that 0% was recycled paper; 16.5 percent indicated that 11-25% was recycled paper; 3 percent indicated that 26-50% was recycled paper; 3 percent indicated that 51-75% was recycled paper; 3 percent indicated that 76-99% was recycled paper; and no distributors indicated that 100% of their uncoated groundwood paper sold was recycled paper. (See Chart 4-H, next page.) 17
Data Analysis It was clear from the data that recycled PWP does not represent a large percentage of most distributor's sales of PWP. For most distributors, recycled PWP represented between 0-25% of their sales, with 1-10% being the most common share of sales. The small market share of recycled free-sheet(non-groundwood) PWP came as no surprise, because the production of recycled free-sheet PWP in the U.S. is considerably smaller than that of virgin free-sheet PWP. While actual production figures for recycled free-sheet PWP versus non-recycled free-sheet PWP could not be obtained, Board staff estimated that, in 1993, production of all recycled PWP (including uncoated & coated groundwood grades) was no more than 16% of all PWP produced in the U.S.; for free-sheet grades only, the recycled percentage was even lower. (See Appendix, Item 1, for method of this estimate.) Uncoated offset paper appeared to be the PWP grade most commonly sold as recycled paper, followed by coated offset, bond and copy, white woven envelope, and forms bond. 18
Recycled newsprint accounted for a very small percentage of most distributors' sales of newsprint. This was surprising because recycled newsprint represents such a large percentage of overall newsprint production, particularly in the U.S. In 1993, nearly 61% of U.S. and Canadian production of newsprint contained some recycled content varying between 5-100%. (Respectively, about 84.5% of U.S. newsprint produced had some recycled content and 44.1% of Canadian newsprint produced had some recycled content). The apparent contradiction between the survey findings and North American recycled newsprint production figures is likely explained by the common distribution method for newsprint (both recycled and non-recycled): it is typically shipped directly from paper mill to end-user, rather than through distributors. Large newspaper publishers and large commercial printers consume the vast majority of recycled newsprint produced. This is due, in large part, to both laws mandating and voluntary programs encouraging the use of recycled newsprint by large end-users. (California and nine other states -- as well as the District of Columbia -- have mandatory recycled newsprint-use laws; fifteen other states have voluntary goals 1.) Because most recycled newsprint is consumed by businesses that receive their newsprint directly from paper mills, it follows that little of the newsprint handled by paper distributors is recycled newsprint. 19
V. PRICE The purpose of gathering information about recycled PWP prices (in relation to non-recycled PWP) was to better understand the impact that recycled PWP prices have on customer demand and on recycled PWP's competitive position with non-recycled PWP. The responses from distributors concerning prices for recycled PWP were quite varied. Overall, most distributors (over 60 percent) indicated that free-sheet PWP prices were generally higher than for non-recycled free-sheet PWP; for newsprint & groundwood grades, most distributors (over 60 percent)indicated that there was either no price difference between recycled & non-recycled varieties, or that the price for recycled was lower. Even for those grades for which there was a common response concerning price, there were significant exceptions. For example, even though over 60 percent of distributors indicated that recycled bond and copy was more expensive than nonrecycled, 28 percent indicated that the recycled variety was less expensive than non-recycled, and an additional 6 percent indicated that there was no price difference between the two. Distributors were asked to fill out a table indicating the price differentials for specific grades of PWP sold as both recycled & non-recycled varieties in 1993. (See questionnaire in Appendix Item 2, Table 2.) The basis of comparison was the price of a 10-ream case (500 sheets/ream) of recycled paper, based on a 1-pallet minimum order. (This basis of comparison was not appropriate for newsprint and paper sold in rolls, but most distributors used a suitable basis of comparison as a substitute.) The following are the results from the distributors' responses. Bond (non-forms) & Copy - Sixty-five percent of distributors indicated that recycled bond and copy paper was, on average, priced higher than non-recycled bond and copy paper; 28 percent indicated recycled bond and copy was, on average, priced lower than non-recycled; and 6 percent indicated that there was no price difference between recycled and nonrecycled. (See Chart 5-A, next page.) Forms Bond (non-carbonless) Sixty percent of distributors indicated that recycled noncarbonless forms bond was, on average, priced higher than nonrecycled forms bond; 33 percent indicated that recycled was, on average, priced lower than non-recycled; and 7 percent 20
indicated that there was no price difference between recycled and non-recycled. (See Chart 5-B, next page.) 21
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Offset (uncoated) Seventy-three percent of distributors indicated that recycled uncoated offset paper was, on average, priced higher than nonrecycled uncoated offset; 16 percent indicated that recycled uncoated offset was, on average, priced lower than nonrecycled; and 11 percent indicated that there was no price difference between recycled and non-recycled uncoated offset paper. (See Chart 5-C, below.) Offset (coated) Sixty-six percent of distributors indicated that recycled coated offset paper was, on average, priced higher than nonrecycled coated offset paper; 16 percent indicated that recycled coated offset was, on average, priced lower than nonrecycled; and 19 percent indicated that there was no price difference between recycled and non-recycled coated offset paper. (See Chart 5-D, next page.) Envelope (white woven) Seventy-one percent of distributors indicated that recycled white woven envelope was, on average, priced higher than nonrecycled white woven envelope; 15 percent indicated that recycled envelope was, on average, priced lower than non- 23
recycled; envelope. (See Chart 5-E, next page.) 24
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Newsprint Thirty-nine percent of distributors indicated that recycled newsprint was, on average, priced lower than non-recycled newsprint; 38 percent indicated that there was no price difference between recycled and non-recycled newsprint; and 23 percent indicated that recycled newsprint was, on average, priced higher than non-recycled newsprint. (See Chart 5-F, below.) Uncoated Groundwood Thirty-six percent of distributors indicated that there was no price difference between recycled and non-recycled uncoated groundwood; 36 percent indicated that recycled uncoated groundwood was, on average, priced higher than non-recycled; and 27 percent indicated that recycled uncoated groundwood was, on average, priced lower than non-recycled uncoated groundwood. (See Chart 5-G, next page.) Coated Groundwood Thirty-six percent of distributors indicated that there was no price difference between recycled and non-recycled coated groundwood; 36 percent indicated that recycled coated groundwood was, on average, priced higher than non-recycled; and 27 percent indicated that recycled coated groundwood was, on average, priced lower than non-recycled coated groundwood.
(See Chart 5-H, next page.)
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Data Analysis Free-Sheet PWP It was not surprising that most distributors reported recycled free-sheet PWP is priced higher than non-recycled; this finding was consistent with the low market share of recycled free-sheet PWP. One of the major reasons that recycled freesheet PWP is more expensive than non-recycled is that the production of recycled free-sheet papers is not nearly as great as is production for non-recycled; i.e., the economies of scale for recycled free-sheet PWP are not nearly as optimal as for non-recycled (see Data Analysis in Chapter IV, Page 16). Production of recycled PWP (free-sheet and otherwise) suffers from poor economies of scale in two ways: 1. those mills that are dedicated to producing recycled PWP are typically much smaller than mills dedicated to producing virgin PWP; and 2. those mills that produce both virgin and recycled PWP typically produce much less of the recycled paper. Per-unit production costs are much less for virgin paper mills with high-volume production. Also, for those mills that produce both recycled and virgin PWP on the same paper machine, there are additional costs of producing the recycled paper due to a higher incidence of machine problems and greater maintenance requirements when using deinked pulp, which often contains contaminants that were not removed during production. These factors contribute to a higher cost of producing recycled PWP. Unusually Low Virgin Paper Prices A temporary, but significant, factor that likely contributed to the higher price of recycled free-sheet PWP relative to non-recycled was the unusually low prices for virgin freesheet PWP during the time period that the distributor survey was conducted. Prices for most grades of virgin free-sheet PWP generally declined during 1992 & 1993 due to two factors: an excess supply of "market pulp 3 " and decline in paper demand from U.S. consumers due to the sluggish economy. On the other hand, recycled free-sheet PWP prices did not generally decline, because there was no decline in deinked market pulp (used to produce recycled PWP). 3 Market pulp is pulp produced by pulp mills for the purpose of sale to paper manufacturers. 29
While many distributors reported that prices for both virgin and recycled PWP were increasing at the time the survey was conducted, the gap between virgin and recycled PWP prices was already wider than it had been prior to the decline in virgin PWP prices, and thus contributed to the higher prices of recycled PWP. Unusually High Recovered Paper Prices Another temporary factor that contributed to the higher price of recycled free-sheet PWP was the remarkable increase in recovered paper prices in 1994. In fact, prices in August 1994 for sorted white ledger -- the primary grade used to make recycled free-sheet PWP -- were over 64 percent higher than they were a year prior, and those prices were still increasing after the survey period ended 2. The high prices for recovered white ledger and other "high grade" recovered papers drove up the cost of raw materials for producing recycled free-sheet PWP. Newsprint and Groundwood PWP Contrary to the prices for free-sheet PWP, most distributors indicated that their price for newsprint and uncoated & coated groundwood papers were either no different or less than their price for non-recycled newsprint and groundwood PWP. This contrast is not due to chance; following is a brief analysis of some factors that likely contributed to the lower price for newsprint and groundwood PWP. Unlike free-sheet PWP, recycled newsprint and groundwood PWP are produced on economies of scale paralleling those of virgin grades, which keeps the per-unit production costs down. As pointed out in Chapter IV, "Market Share", 85% of the newsprint produced in the U.S. and 44% of the newsprint produced in Canada has some recycled content. Another factor contributing to the lower price of recycled newsprint and groundwood PWP relative to virgin grades is that old newspapers and magazines -- the primary recovered paper grades used to make deinked groundwood pulp for recycled newsprint and groundwood PWP -- have traditionally been inexpensive feedstocks compared with virgin groundwood pulp. Thus, those mills that operate on an economy of scale rivaling that of virgin newsprint and groundwood PWP mills have an economic advantage in raw material costs. Recycled coated and uncoated groundwood PWP do not represent as large a percentage of overall groundwood PWP production as does recycled newsprint to overall newsprint production, and consequently, prices for recycled groundwood PWP are not as 30
consistently lower than non-recycled groundwood PWP as are recycled newsprint prices lower than for non-recycled newsprint. This was evidenced by 36 percent of distributors indicating that prices for the groundwood grades were higher than for the non-recycled groundwood grades, whereas only 23 percent of distributors indicated that prices for recycled newsprint were higher than for non-recycled newsprint. 31
VI. QUALITY The purpose of gathering information about the quality of recycled PWP was to see if inferior quality characteristics existed that may discourage consumers from purchasing recycled PWP, and thus prevent recycled PWP from gaining in market share. Additionally, the information was to be used as a gauge to judge changes in recycled paper quality from that of a few years ago. The distributor responses concerning quality of recycled paper were quite varied. Overall, more than 50 percent of the paper distributors surveyed indicated that, for each PWP grades, there was either no difference in quality between recycled and non-recycled varieties, or the recycled variety was superior in quality to the non-recycled variety. However, there were also a large number of distributors who indicated that recycled PWP had inferior quality characteristics. The most common inferior quality characteristics cited were lower brightness and presence of "dirt" (ink) specks. Many distributors cited both inferior and superior quality characteristics about the same recycled PWP grade. For example, some distributors cited better finish characteristics for recycled coated offset, but still noted a higher incidence of dirt specks. It is significant that most the inferior quality characteristics cited by the distributors were aesthetic in nature, rather than implying inferior performance. Even though lack of stiffness was often cited as an inferior quality characteristic, very few distributors tied this to poor performance on either printing or copying equipment. Distributors were asked to fill out a table indicating whether there was any difference in quality between recycled and nonrecycled varieties of the eight PWP grades, and to indicate the characteristics, if any, that made each recycled grade superior or inferior to non-recycled. The following are the results from the distributors' responses. Bond (non-forms) and Copy Fifty-six percent of distributors indicated that there was no quality difference between recycled and non-recycled bond and copy paper; forty-two percent indicated that recycled had inferior quality characteristics; and two percent indicated that recycled bond and copy paper had superior quality characteristics. (See Chart 6-A, next page.) The inferior quality characteristics cited for recycled bond and copy paper were (with the number of distributors that
cited the characteristic in parentheses): brightness (11), lack of stiffness (9), presence of dirt specks (7), presence of dust/lint (3), and poor finish/texture (3).
The superior quality characteristics cited for recycled bond and copy paper were body (1), texture (1) and shade (1). It is interesting that at least one distributor preferred the lower level of brightness common to recycled bond and copy paper. While conventional perception in the paper industry equates high brightness with high quality, some prefer a less bright white sheet because the reduced glare causes less strain on the eyes. Forms Bond (non-carbonless) Sixty-nine percent of distributors indicated that there was no difference in quality between recycled and non-recycled noncarbonless forms bond; thirty-one percent indicated that recycled non-carbonless forms bond had inferior quality characteristics; and no distributors cited superior quality characteristics. (See Chart 6-B, next page). The inferior quality characteristics cited for non-carbonless forms bond were presence of dirt specks (6), low brightness (5), poor finish/texture (4), lack of stiffness (3), and high level of dust (1). 34