Research & Innovation
Recycling: Following the Paper Trail Towards a Healthy Environmental Paper Sector
By Pulp & Paper Canada
The printing and writing paper industry is under pressure to develop and promote more environmentally-friendly paper products. Companies such as Hewlett-Packard, Cascades and Kinko's have responded to...
By Pulp & Paper Canada
The printing and writing paper industry is under pressure to develop and promote more environmentally-friendly paper products. Companies such as Hewlett-Packard, Cascades and Kinko’s have responded to consumer pressure and environmental lobbying by supplying “environmentally preferable papers” (EPPs) to varying degrees, based on their anticipation of where the market is going. However, the industry, by and large, continues to hold the view that there is no reliable demand for EPPs and limited market potential in North America.
As a result, market growth and investment in EPP technology and capacity has stagnated. Currently, North American printing and writing papers average 5-7% recycled content; nowhere near the 30% recommended by environmental groups1.
The Aurora Institute and Reach for Unbleached! Foundation of Vancouver, BC, are currently completing a national study funded by Industry Canada on barriers to market growth for this sector. The study, Following the Paper Trail: Towards a Healthy Environmental Paper Sector, highlights the myths and real barriers limiting growth.2
The results suggest demand is primarily inhibited by market confusion, which is caused by several factors. Lack of consistent consumer education, poor marketing and inadequate labeling result in consumers who incorrectly believe their office papers already contain recycled content, which is not the case. Further, buyers perceive EPPs to be more expensive and of lower quality than they actually are, and are not consistently linking their environmental values to their purchasing decisions. Finally, blocks in distribution channels mean that EPPs are not conveniently available to many consumers. As a result, demand has been unreliable and manufacturers are wary of increasing EPP production.
However, Following the Paper Trail asserts that obstacles to growth for the EPP market can be (and are being) overcome. The report provides a business case for investment in EPPs, with future growth driven by two emerging trends.
First, select manufacturers, retailers and environmental groups (ENGOs) will continue to join forces to promote EPPs. This coalition will better educate consumers, increase product awareness, and grow the market.
Second, corporate and institutional buyers are increasingly under pressure to change paper consumption habits and make the switch to EPPs.
These social and business trends will provide attuned manufacturers with the opportunity to build new markets and differentiate their products by adding environmental value to their paper.
As these trends continue, corporations best prepared to capture increased EPP market share will come out ahead. Manufacturers that ignore emerging market opportunities will continue to struggle with price-based competition, shrinking margins and declining market share.
Market Barriers to EPPs
Following the Paper Trail identifies several supply and demand barriers that are limiting the growth of the EPP industry sector. On the demand side, contradictory consumer preferences, poor marketing and a lack of policy and accountability mechanisms for institutional paper purchasing are having an impact. These barriers are breaking down due to proactive efforts by some manufacturers, ENGOs and consumers, but real market limitations remain. Similarly, on the supply side, commodification, industry consolidation and globalization are limiting the ability of suppliers to manufacture EPPs on a large scale.
EPP Demand: Why isn’t it growing?
1. Contradictions at the consumer level
Following the Paper Trail’s survey results indicate that price and convenience are the deciding factors for most paper purchasers. Only 17% of Canadian home consumers consider “environmental friendliness” the most important consideration when buying paper, compared to the 42% who consider price the most important factor. Institutional paper buyers consistently choose convenience as their most important purchasing factor, followed by quality and price. Figure 1 illustrates that institutional consumers do not emphasize environmental and social criteria in purchasing decisions.
These results bring to light a startling contradiction. Surveys have typically found a majority of Canadians are willing to prioritize “green purchasing” and even pay more for these products. However, Following the Paper Trail suggests that “willingness” is not enough. Even though 58% of the survey respondents were willing to pay up to 5% more for EPPs and Canadian consumer values consistently support forest conservation, clean air and clean water, these same respondents aren’t prioritizing EPPs in their actual purchasing choices.
Part of the problem is that there is currently no single value that has warmed public sentiment to EPPs — in fact, there seems to be a great deal of consumer confusion. Following the Paper Trail demonstrates that Canadians have not taken hold of any single purchasing motivator – respondents seem confused as to paper types, choices, and reasons for buying different papers. This suggests that the environmental community, other stakeholders and EPP manufacturers need to market clear and consistent messages linking values with purchasing. In addition, product types, composition, quality and availability must be clearly communicated to the consumer.
2. Market confusion means poor marketing
In the EPP market, confusion is rampant and Canadians show a strong lack of knowledge about the properties of the paper they buy. When asked, a full one-third of Canadians who claim to buy EPPs say their paper contains more than 50% post-consumer recycled content. This consumer belief is not supported by industry sales and distribution data as paper with greater than 50% post-consumer recycled content is not widely available. Canadians simply aren’t buying as much recycled content as they think.
This may be caused by a lack of consumer marketing and education by industry distribution channels. Manufacturers typically see distributors as their customers and are not involved with marketing to consumers. Large retailers and distributors have often treated EPPs as niche products, not worthy of special promotion or consumer education. As a result, no one inside the paper distribution chain has educated consumers about EPPs, resulting in limited distribution, poor product positioning in stores, minimal advertising, inadequate labeling and virtually non-existent accessible consumer information. As a result, myths about poor EPP performance, aesthetic quality and availability persist.
3. Paper purchasing policy and Corporate Social Responsibility
The lack of written organizational paper purchasing policies that include accountability mechanisms is another demand inhibitor. Environmental benefits of paper purchasing are not associated with corporate strategy and image and, with exceptions, few companies see paper procurement as a strategic component of corporate social responsibility (CSR). Without written policies to guide them, organizational paper purchasers rarely support EPPs. Instead, buying decisions are governed by convenience, price and long-term supplier relationships.
EPP supply: what is holding it back?
Just as market confusion is artificially inhibiting the demand side of the equation, Following the Paper Trail shows that perceived barriers are holding back supply although real barriers do exist. Overwhelmingly, industry representatives cite unreliable demand for not increasing capacity. The cost of changing production processes in a low-margin sector also tops the list of reasons for not investing in EPPs. The industry appears to view expanding EPP production as speculative and risky, arguing that shifting production lines to recycled and totally chlorine-free processes involves costs not worth undertaking until demand changes.
Following the Paper Trail further identifies several systemic barriers which limit producer maneuverability, including:
Commodification — Paper has traditionally been positioned as a commodity, with little attention paid to adding consumer value. Competitive a
dvantages are primarily gained through price competition and cost reduction, which has hurt industry profitability due to intense global competition from lower-cost suppliers.
Consolidation — Consolidation in the industry often results in less paper choice for consumers. Large production plants focus on cost cutting within existing product lines and not on product innovation, because lines must be running at close to full capacity to be profitable.
Globalization — The globalization of pulp and paper markets affects the ability of North American producers to access the reasonability priced fibre for recycled paper production. In addition, the North American industry is struggling to compete with lower-cost suppliers.3
Opportunities in a time of change
Given these systemic pressures on the paper industry, the conservative views of many companies are understandable. However, companies could be putting themselves at greater risk by not looking beyond the present industry context. As one industry analyst put it, “The forest and paper sector has a reputation for moving at the speed of pain rather than gain.”4 Consider globalization. North American producers’ natural competitive advantages in virgin fibre availability and technology have diminished. New competitive advantages need to be created — and some of the most promising areas include EPPs. The industry is limiting its potential because it does not see the flip side of risk: opportunity.
Furthermore, evidence indicates that demand barriers are eroding. Following the Paper Trail argues that a steady rise in demand will accompany consumer education and shifting priorities in the following areas:
Corporate: CSR practices are taking off. As companies strive to improve their images, demand for EPPs will increase. Paper represents an easy and meaningful switch for organizations seeking to improve environmental performance. High-profile companies such as Kinkos, Staples and Hewlett-Packard are recognizing the strategic value that building market share for EPPs will bring to both their “brand image” and bottom line. Further, institutional paper buyers resoundingly want to see the industry make EPPs made more easily available.
Government: Written EPP procurement requirements are increasing among various levels of government. This is in keeping with consumer expectations, as 77% of Canadians expect their government to purchase environmental paper, even if it is more expensive, according to Following the Paper Trail’s Omnibus (Ipsos Reid) survey.
Environmental Organizations: A range of efforts by ENGOs including certification, labeling standards, consumer education, and procurement simplification are providing consumers with the opportunity to make informed choices. ENGO efforts are exposing the realities behind myths that have artificially inhibited demand for EPPs for years.
Industry/ENGO Partnerships: Alliances for market development and consumer education are increasing. This trend will ensure that current barriers to the growth of EPP demand are eliminated.
What does this mean? Although demand is not going to skyrocket overnight, the long-term prospects for EPPs are promising. Companies proactively working to reach customers will position themselves to meet the needs of this shifting market.
In light of current shifting demand drivers — coordinated pressure from ENGOs and the prospect of a better educated buying public — industry leaders should study where the strongest business opportunities lie. A business case for EPP production is emerging right here in North America.
Business case becoming customer-oriented
Paper manufacturers are understandably confused about what value EPPs can add to their company. Following the Paper Trail concludes that producers who attempt to understand and reach their true customers — paper users — will find latent demand to fuel future expansion of the EPP sector.
Changing business environment
The business environment for the forest products and paper industry is changing. The reasons behind this are numerous:
Distribution channels: Big box retailers increasingly dominate the consumer paper market, which is consolidating if not eliminating traditional distribution channels. Manufacturers wanting to bring new products to market are going to need to update their channels to reflect their business strategy. This will include working with the retailers to better promote their products, building partnerships with third-party branders (such as Hewlett Packard), and forging alliances with the environmental community for help with consumer education.
Customer-oriented strategies: The information age is changing vendor/customer relationships, even with commodities. Industries not used to dealing directly with consumers are learning to create business strategies driven by customer needs instead of traditional industry structure.
Social and consumer pressures: The high visibility of the large retailers and their branded paper suppliers has made them vulnerable to “market campaigns” by large environmental alliances. Again, consumer voices are having much more influence.
Investor pressures: Price competition and a lack of product differentiation in the paper sector are reducing profitability. Investors are looking for opportunities to add value without adding significant capital costs.
With this business environment as the context, EPPs are part of a strategic business response that sees an emerging market within a shifting industry. Getting closer to the end user of paper, educating customers, and developing reputation capital by partnering with ENGOs is good business sense. Promoting EPPs supports this trend towards greater customer orientation and equips companies to deal with changing markets (See Table 1). In the end it is a matter of perception – one firm’s risk is another’s opportunity.
Conclusion: Building demand – market realities and implications
In spite of constraints, some EPP manufacturers, distributors and retailers are seeing success. Following the Paper Trail isolates three distinct market realities with implications for this sector.
Reality 1: Lots of latent demand out there!
While survey data indicates that a large demand shift for EPPs has not yet occurred, the data also paints a picture of demand artificially constrained by consumer confusion. Perceptual barriers of quality, availability and price should dissolve as consumer education about EPPs increases. Current demand weakness that is based on a lack of information can thus be seen as the active suppression of latent demand.
Reality 2: Pressure is on to make latent demand active!
Demand will not remain latent for long. Market forces are emerging to change this industry. Proactive marketing by companies such as HP are directly aimed at opening up markets and building reputation capital. The ENGO sector is working with industry and government to consolidate efforts and messaging for consumers through new alliances with business (e.g., Corporations Supporting Recycling in Canada) and by helping governments examine purchasing policies.
Reality 3: EPPs offer the opportunity to escape price competition and gain market share
Companies that proactively pursue EPPs will create a competitive advantage by adding environmental value to their products. Corporations can use EPPs as an opportunity to escape the commodity trap and avoid intense global price competition.
In conclusion, the lesson for the paper industry is: don’t run from change, leverage it. Those that successfully build this market will reap the rewards of a more sustainable and healthy North American industry.P&PC
1 Kinsella, S. (2001). “Recycled paper buyers, where are you?” http://www.howdesign.com/technology/ paper/env.html.
2 The study, which will be released in fall 2003, featured an Ipsos-Reid national consumer survey exploring paper buying patterns and motivations of 1000 Canadians, an online survey of 139 institutional paper buyers and 55 interviews with industry stakeholders and experts.
3 For an in-depth discussion of supply barriers, industr
y responses and possible solutions please see Following the Paper Trail, due to be released in October through the web site www.aurora.ca.
4 Hayhurst, D.P. (2002). “Return on Capital Employed: Using YOUR Supply Chain to Reap Rewards”. Price Waterhouse Coopers.
TABLE 1: Why Should Paper Companies Embrace EPPs? Some Considerations
To be better prepared for future environmental requirements (regulatory or customer driven) through production upgrades to “Close the Loop”.
To develop reputation capital or overcome problematic image issues and recover reputation capital.
To open up or enter new market segments and capture more market share, e.g., attract customers educated about EPPs, and take advantage of new procurement policies dictated by CSR.
To differentiate products and create a price premium based on brand image and/or environmental ethos.
To pre-empt company and brand vulnerability to markets campaigning by ENGOs.
To take advantage of relationship building with ENGOs, which are both reputable partners from a customer image standpoint, and trusted information providers.
To protect existing capital from shareholder activism, and potentially to access “ethical capital”.
To maintain existing customer base and get closer to final end users.
To create new competitive advantages, as historic ones erode in a global industry.
Jay Ritchlin is the program director for Reach for Unbleached!, Laura Davis is the managing director for Sitka Strategies and Alistair MacDonald works for Aurora Institute. For more information on the Aurora Institute, please see www.aurora.ca; on Reach for Unbleached!, please see www.rfu.org. To receive a copy of the report, please contact the Aurora Institute at (604) 669-5199.
“A Common Vision” sets the bar for EPPs
New ways are being found to reduce confusion and increase action among paper-buyers. Recently, a self-critical reassessment was undertaken by many environmental organizations (ENGOs) concerned about paper issues. These ENGOs decided their education efforts were not reaching a wide enough audience (or perhaps the right audience), contained too many confusing messages, and lacked a strategic vision for change.
To address these concerns, the ENGO community created a united front, the Environmental Paper Network (EPN), and adopted minimum standards for EPPs.
The defining document, A Common Vision for Transforming the Paper Industry was released as part of Paper Week in Montreal in February 2003.5 The Common Vision calls for:
Cleaner production throughout the production chain from forest to factory and beyond — with specific reference to the preference for TCF/PCF bleaching over ECF;
Responsible fibre-sourcing (no old growth or endangered forest fibre, third-party certified forest practices (FSC is currently the only system recognized), and consideration of alternative fibre sources where appropriate; and
Maximizing recycled content across all paper grades (with 30% PCW as the minimum bar for printing and writing papers).
Just as important as this “setting of the bar” is the ENGO sector’s offer of tools to help purchasers and manufacturers reach these standards. Written EPP purchasing policies for institutional buyers are one such tool.#text2#