Examination of witnesses (Questions 398
- 419)
TUESDAY 10 FEBRUARY 1998
MR BRYAN
BATEMAN, MR
ALAN MCKENDRICK
and MR JOHN
GOODALL
Chairman
398. Gentlemen, may I welcome you to the
Committee and ask you first of all to introduce yourselves for
the record?
(Mr Bateman) Thank you, Mr Chairman. I am a director
of The Paper Federation. John Goodall is chairman of BPB Paper
Board, the largest plasterboard manufacturer in Europe. Alan McKendrick
is chief executive of Ayelsford Newsprint Ltd, itself the largest
manufacturer of recycled newsprint in the United Kingdom.
Chairman: Thank you
very much. Mr Olner?
Mr Olner
399. I wonder whether the Paper Federation
could perhaps give the Committee their views on what they think
is the true concept of sustainability in the context of waste
management?
(Mr Bateman) First of all, Mr Chairman, we would
say that products have to be made in a sustainable way and with
waste minimised in their production and subsequent use, and when
one is recovering waste from those products they should be used
as often as possible by recycling before then ultimately becoming
waste when they must be disposed of in a manner which is economic
and environmentally sound.
400. Can you perhaps elaborate on the sustainable
bit of it? People have a very difficult job grasping what sustainability
means.
(Mr Bateman) In the context of paper sustainability
means that the fibre is drawn from sustainable sources in the
first place and these are forests that are grown specifically
for the generation of fibre, for wood products and for paper,
and they are grown again and again and again so that there is
no depletion, and then from the sustainable point of view, once
you have the products, that is recycling as much as you possibly
can prior to the ultimate disposal as those fibres become worthless,
by initially generating power or by putting them into landfill.
401. Would you agree with the statement
that the demand for paper products usually rises with GDP?
(Mr Bateman) That is true.
Chairman
402. Would it not be a good idea to change
that and to reverse that process?
(Mr Bateman) You could put that as a good idea,
Mr Chairman, but I think that you have to recognise that the provision
of paper products is really answering the needs of society. Paper
is fundamental to the development of society. Economies of course
will be driven throughout the entire process, and, for example,
I do not doubt you can recall when The Times was thick enough
to stand up on its own, but progressively The Times has been reduced
in thickness——
403. And content.
(Mr Bateman) —— and is now relatively
flimsy. That is an example where there have been economies on
the way but nevertheless society as a whole demands more and more
paper for every part of its needs, graphic papers, packaging,
for education purposes, books, and so on. We could go on—the
list is almost endless—and one has to recognise that that
is the result of the demand of society. We are here to respond
to that.
404. So the Paper Federation are in a very
good niche monopoly market?
(Mr Bateman) You could say that if society is
continuing to demand paper.
405. Could I ask you if there is any driver
within the Paper Federation to reduce the amount of paper that
is used? Obviously it will be counter productive to what you are
seeking to achieve?
(Mr Bateman) You mean, are we going out and asking
the public to use less paper?
406. Or use products perhaps packaged with
less paper.
(Mr Goodall) If I can take that, Mr Chairman,
I think that that second point is a good point and it was touched
on earlier. There is no doubt that as technology advances the
use of recycled fibre does allow us to improve product packaging
presentation and through that process progressed, reduce the weight
of packaging, and that is a trend that has continued throughout
the last decade and is accelerating now. It becomes more difficult
as you re-use the fibres. As Bryan Bateman said earlier, ultimately
those fibres become of no use to the industry and therefore they
find their way ultimately into an incinerator or landfill facility.
However, basically technology is now advancing so that we can
do this with lightweight packaging through more use of recycled
fibre.
407. How can you strike a balance between
market forces and statutory requirements in achieving a sustainable
waste management strategy?
(Mr Goodall) Mr Chairman, I think that the industry
and the market wants to operate unimpeded, but in the process
it obviously is an international market and we always have to
take on board the actions of international forces that influence
national markets, and in that process we as an industry are looking
always at managing cost. I think that where there is a link and
a balance to be struck between the market and the legislation
would be in the area of environmental cost and in particular landfill.
As demand for packaging has increased, more finds its way into
landfill, and while wood fibre is of the utmost importance to
the industry the greater access to wood fibre via recycling enables
us greatly to improve our overall position.
Christine Butler
408. What potential is there for recycling
of paper to increase beyond present rates?
(Mr Bateman) Currently the recovery rate for paper
in the United Kingdom is 41 per cent, Mr Chairman. That compares
with 50 per cent in Europe as a whole, and I should say that we
are the largest recycler in the United Kingdom of any material.
Really the way to increase the recovery of wastepaper in the United
Kingdom is very simply that we have to put more manufacturing
plant down in the United Kingdom to make more paper products in
the United Kingdom. We currently import roughly half of what the
United Kingdom uses in terms of paper products. Therefore, frankly,
if we put more plant down in the United Kingdom then one would
use more waste paper. To illustrate that point, the industry has
invested in the past ten years or so over £5 billion in putting
new paper manufacturing plant in the United Kingdom, and much
of that has been in the recycling of paper.
409. What are the barriers to greater recycling
of paper? There is an argument that to go to a large percentage,
100 per cent, recycling, to continue with recycling there may
be difficulties with the end product and its use, and also we
are looking at the recycling credit scheme as well, so does that
need improvement so that we have two ways of doing this?
(Mr Goodall) If I may take the larger picture
and address that first, Mr Chairman, certainly the industry is
very capital intensive. I can quote a colleague at an industry
conference saying that the stock markets had an all time record:
a surprisingly youthful party, and somebody forget to invite the
paper industry! In investing in traditional recycling facilities
we are at this moment in time not recovering the cost of capital
and therefore there is a commercial issue that we have to address.
I think that in looking at the infrastructure of the recycling
industry, however, particularly against the background of the
new legislation, there is an important role there for all participants
in the sector to get together to look at issues such as the recycling
facilities in the local authority area as a means of improvement.
410. Yes, but how? What are you suggesting?
(Mr Goodall) First of all, Mr Chairman, I think
that there is a determination on the part of the paper industry
to make the new packaging legislation work. Having said that—and
Bryan Bateman has outlined to the Committee the importance of
recycling within the paper industry—we are five times better
than glass and something like 15 times better than plastic. The
difficulty in the legislation and the Guidance Note, as was outlined
in earlier evidence, is that the industry has a problem in that
other material streams can benefit from recovery in paper and
cross subsidy in the distribution of the packaging recovery notes,
and that to us is an inherent danger for us to continue on this
increasing recycling ambition that we have. The opportunity for
non-obligated companies to use paper as a means of securing packaging
recovery notes and then trading in those notes, will ultimately
result in those with packaging obligations having to go out into
the market to pay inflated prices for packaging recovery notes
to meet their obligations, is seen as a major threat to the industry.
Certainly in this area there is a need to review legislation to
support the overall targets without using one material stream
to support the recovery rates in other streams.
Chairman
411. If I may just go back to the question,
you are saying that the industry is not profitable at the moment.
Is that because of foreign imports or because of your problems?
(Mr Goodall) The industry is profitable. The point
that I made, Mr Chairman, is that the industry is not able to
recover the cost of capital. My colleague, Alan McKendrick, might
be able to give you a more up to date position. If you take a
100,000 tonne new mill it will cost £100 million of investment
to bring that into commission. The current profitability of industry
would not justify that investment. Therefore, we need to look
at all the factors influencing that, particularly in the major
decisions that companies have to make.
412. Mr McKendrick?
(Mr McKendrick) Thank you, Mr Chairman. I think
that we clearly are operating in a global market and the one thing
that we cannot determine is what the overall price of our product
is. It is traded across borders. Therefore, the inherent costs
of the business have to be kept low. Now the United Kingdom is
actually potentially in a very good position because we actually
use about three million tonnes of newspapers and magazines each
year and there is only one million tonnes that is in fact recycled.[1]
That means that there is a potential certainly to increase that.
Now of that one million tonnes there is probably about 90-odd
per cent of recycled content in newsprint manufactured in the
United Kingdom and that is very significant. As Bryan Bateman
said earlier, Mr Chairman, the real investment in the paper industry,
particularly in the graphic side of that and packaging, has been
in the use of recycled fibre and it has been a real regeneration
of an industry in the United Kingdom in the last five years.
413. What I am puzzled about is that when
the Committee looked at this topic about five years ago it was
claimed that when your new mill came on to stream to deal with
recycled paper the problems, the ups and down, in the waste paper
market would be to a large extent solved, but as far as I can
see they are worse now than they were five years ago?
(Mr McKendrick) Mr Chairman, that is not my experience.
When our mill came on there was a slight effect, but that was
a world wide price spike generally because of activity in south
east Asia and even waste paper moves across boundaries. Since
that time waste paper prices have actually stabilised and I think
that quite a number of local authorities now are benefiting from
longer term partnerships and that is what I think local authorities
are looking for in the future.
414. But you have given very good long term
contracts to local authorities and have rather put out the waste
collecting by voluntary organisations and other people in the
chain, have you not?
(Mr McKendrick) I think that there are still quite
a number of charities that get a significant contributions to
their funds from waste paper recycling. It is not universal, of
course, and as my colleague, John Goodall said, transport is an
issue and we have got to make sure that we utilised the raw material
local to mills and local to the usage.
Christine Butler
415. Can I ask you now about a common problem
especially for local authorities who have to deal with all the
planning obviously, that is, the stability of the market for the
recycled paper. The prices have been fluctuating dramatically
over the past few years. They are having difficulties with their
contractors and so on as a result of that. What do you think may
be done?
(Mr McKendrick) Mr Chairman, the fluctuation in
price is I think actually an over-statement. There was a large
price spike but that, as I said, was a world price spike and not
just a local one. The reality is that if there is an investment
in manufacturing, then that material will be pulled out of the
supply stream, but the great difficulty is to get these two things
in balance. As John Goodall said, we are talking about large capital
investments. I think that the real challenge for local authorities
and for the industry is to ensure that the collection schemes
are started up, and started up in a cost effective way. The local
authorities have a major problem there because the start up of
the collection scheme is expensive. To start up a doorstep collection
scheme takes a lot of money and a lot of courage, I think, from
local authorities at the moment. There are many good examples
now of sharing best practice and there have been quite a number
of studies done to say that some local authorities are cost effective
and others have tried things that have not been quite as cost
effective. I think that organisations like LARAC and the Local
Government Association are starting to share best practice. There
are initiatives going on in London to make sure that we get the
best possible low cost collection schemes in the capital by innovative
means, not just taking it as a waste collection, but actually
a recycling collection, a different concept. I think that these
initiatives and the sharing of these experiences are the things
that local authorities would benefit from.
Dr Whitehead
416. My understanding is that you are saying
that if you were able to invest in a further new mill that would
attract a great deal more recycled paper into the newsprint stream
and secondly it would offset imports of paper?
(Mr Bateman) Yes.
417. But that you have not got the money
to invest in that mill as an industry?
(Mr McKendrick) Mr Chairman, I think that it is
interesting that most of the investment in UK paper manufacture
in recent years has been foreign money, and that, of course, is
a very good thing for UK plc. However, investors look across the
world and say, where is the best return to be achieved, and these
are the decisions that are being made all the time—what
is the security, what is the risk involved in investing in this
industry at this time.
418. But, just so we can get a feel of this,
how short of the money is the industry? Let us say that Government
came up with a large wad of notes and said, here we are, invest
this in the mill, and you have got to put the rest of the money
in, what percentage would that represent? What would be the incentive
required in order to make that change in recycled paper manufacture
possible?
(Mr McKendrick) When you look across Europe—and
I am talking about the newsprint mills which generally cost about
£250 million—the last mill in France got a grant of
about 200 million, 220 million French francs.
419. So that is the sort of range?
(Mr Bateman) There is a new newsprint mill proposed
in Germany and my information is that it will receive a grant
of £100 million.[2]
The last newsprint mill that was put in place in the United Kingdom
was Alan McKendrick's, and that received £20 million.
1 Note by witness: Production of newsprint in
the UK currently amounts to just over one million tonnes. Back
2
Witness correction: The figure should be 100 million Deutschmark. Back
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