Rural Paper Industry

Guy Opperman Excerpts

Wednesday 2nd July 2014 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship once again, Mrs Riordan. I thank the Minister for coming along to give his thoughts on the Government’s position on securing and enhancing our rural economy.

Creating business opportunities and increasing jobs rightly continues to be an important focus of this Parliament. There is no greater challenge than bringing jobs and business to all areas of the UK, be they rural or urban. My constituency has both rural and urban communities, and the more rural areas are growing. Although those communities can be sustained by people travelling to towns and cities for employment, for various reasons we still need to provide work for the rural population.

With that in mind, I recently visited a new business venture in my constituency called West Coast Woodfuels. The business, which was set up in the hills behind the village of Inverkip, uses sustainable forestry management to produce and supply wood chip for biomass energy. However, the sustainable forest maintained for that purpose relies on servicing a limited number of biomass customers. The plan was always to establish a green industry, acknowledging that the UK’s forest and timber industries are virtually carbon neutral.

Forestry management maintains vital investment in rural economies and plays an important role in the construction, renewable energy, paper and tourism sectors. Historically, forests were planted, maintained and harvested to provide wood and building materials, as well as tools and timber for industry. Britain saw a serious decline in its forested land in the 19th century, when deforestation occurred at an alarming rate to meet agricultural and industrial demands. The 19th century also saw wood pulp from trees gradually replace other sources of fibre used for paper making, such as straw, grasses and rags. Our history shows that the recovery from world war two did much to focus minds on the need to rebuild industries and the economy. As a result, forests were intensively harvested primarily for timber production.

[Guy Opperman (Hexham) (Con)]

I congratulate the hon. Gentleman on securing this important debate. I speak as the representative of the constituency with the largest forest in the United Kingdom—Kielder. Egger, in my constituency, has a cross-border interest in Barony, which is in Ayr, and in Hexham. As a supplier of wood chip, it is very dependent on the businesses the hon. Gentleman is talking about. Does he agree that this and future Governments must consider the commercial forests of the future so that we have an ongoing forestry ecosystem?

[Mr McKenzie]

The hon. Gentleman is absolutely spot on: forestry must be managed for the future, to provide not only raw materials but jobs and industry in the areas I am talking about.

The trend towards deforestation has now been arrested, but even though the UK has favourable growing conditions, only 12% of its land is forested, compared with 28% in France and 32% in Germany. Since the 1950s, increasing quantities of paper have been made from recycled sources, but the rest comes mainly from virgin wood fibre from coniferous trees grown in sustainably managed and certified forests. On the whole, that makes good economic and environmental sense in the densely populated but under-forested UK.

Of the timber extracted in the UK, less than 5% is used in paper and pulp production, compared with about 11% in other countries. That timber is lower-grade conifer logs and forest thinnings. Higher-grade timber is generally used by other industries, such as construction and furniture making.

Clearly, the paper industry depends on trees and needs new, thriving forests. It is very much in the industry’s interests for trees and forests to be used sustainably and to remain available as a raw material for future generations and as a source of future employment. The industry employs thousands of people across the UK and indirectly provides even more jobs in sectors such as publishing and packaging. That helps to generate wealth, and it creates jobs in predominantly rural areas, where it can be the only source of revenue for local populations.

In many ways, the pulp and paper industry is a business model of sustainability, and 2013 was relatively successful for it—more so than recent years. Increased consumer spending helped the packaging sector and other sectors. Looking to the recent past, we see that peak employment directly in the paper industry was reached in 1959, when it employed 100,000 people. By 1960, UK paper consumption exceeded 4 million tonnes per annum for the first time. However, by 1981, imports of paper and board exceeded UK production for the first time. Since then, this employment has declined, along with the number of mills. However, tonnages have continued to increase. By 2012, there were 53 mills in the UK, producing an estimated 4.4 million tonnes of paper and board.

Paper mills use recycled paper to produce 70% of the fibre for paper making in the UK. However, paper can be recycled only a set number of times—I am told the maximum is about seven. After that, the paper loses its fibre and is no longer useful for making good quality paper, so forestry still underpins the industry.

Virgin pulp comes from northern England, Scotland and abroad, and 5% of harvested UK timber is used in paper making. As I said, UK timber can also be used in biomass energy production, making biomass an ever-growing additional competitor of the paper industry for new wood, and suggesting that more forests are needed. Forests are a renewable, sustainable resource. They are carbon neutral, and they also create pleasant environments for leisure activities. In the UK, there is consensus that improved forest management would increase rural employment.

What, then, of the impact of recycling as we steadily improve our performance on our recycling targets up and down the country? Since the 1950s, UK paper makers have steadily increased their use of recovered paper, and nearly 70% of the fibres used to make paper in the UK now comes from paper that has been collected and recycled. As I said, however, there is a limit to the number of times paper can be recycled. There is also an ever-growing and fiercely competitive market for recycled paper, so new pulp needs to be sourced.

It is not only the paper industry that requires access to new pulp. The UK packaging manufacturing industry also requires it. It has annual sales of £11 billion and employs 85,000 people, and represents 3% of the UK’s manufacturing work force. It is a powerful addition to those demanding access to new sources.

I have visited a packaging firm in my constituency. McLaren Packaging, which produces packaging for more than 100 whisky products, has invested in cardboard tube manufacturing with great success. In fact, most of the whiskies that are on display in shops or exported will feature distinctive packaging from McLaren Packaging in Port Glasgow.

The cardboard packaging industry’s main product segment, however, is corrugated cardboard boxes, with additional cartons and cases. Such products are made of three layers of cardboard sheeting, with a corrugated sheet in the middle, making the box more durable than standard containers. Cardboard boxes have a wide variety of applications and are used to package many products across a range of sectors. Its customers include manufacturers, wholesalers, storage owners and retailers. In general, demand for cardboard boxes correlates with demand for consumer goods as greater manufacturing output triggers a greater need for packaging.

In my part of the UK, forestry is sometimes described as the secret industry. About 40,000 jobs would disappear from the area if there were no forests or forest industries. Every week, some 4,000 lorry loads of harvested wood are transported to mills for conversion into timber for house building, quality paper and many other essential products. After felling, more trees are planted and the cycle continues. That makes forestry truly sustainable. It promotes economic activity in rural areas in ways that protect and conserve the natural environment and wildlife. Forests also support a network of interdependent businesses, including those of forest owners and managers who produce wood while creating wildlife habitats and providing recreation facilities. There are forest nurseries, where young trees are grown. In addition, contractors harvest the wood, and hauliers transport it, and there are businesses that process wood, such as the paper industry.

The development of wood-processing industries really took off in the 1980s. That was when the forests created during the middle part of the 20th century began producing significant volumes of softwood. However, careful management of the forests can also produce the energy for manufacturing of paper through energy biomass. Thus there is a natural resource that can not only be transformed into a product but can fuel the manufacturing process to create the product. More than half the energy used in the EU paper industry now comes from biomass, and the UK paper industry is using biomass with increasing frequency. That means that more forests will be needed to provide adequate supplies for both energy biomass and other industries, such as paper. Creating a rural paper industry next to a forest would seem as natural and logical as it was in the past to match up a mill with a stream for hydro power.

The European pulp and paper industry is in many ways a business model of sustainability, and it is largely rural.

[Guy Opperman]

The industry experts to whom I have spoken on both sides of the border are opposed to Scottish independence and the impact that that would have on the businesses we are concerned about. Does the hon. Gentleman agree?

--- Later in debate ---

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I congratulate the hon. Member for Inverclyde (Mr McKenzie) on securing a debate on this important matter. As he said, the paper industry is an important one and always has been. The hon. Gentleman gave historical figures, and he might like to know that I was brought up in a paper mill village. Bullionfield paper mill in the village of Invergowrie supplied high-quality paper for more than 100 years, including, as I recall, paper for the Tokyo Olympics programmes.

The Government recognise the challenges facing all the energy-intensive sectors, including paper, and I welcome the industry’s positive recognition of Government support in its June 2014 review. That review commended the steps being taken by the Government to ease the direct and indirect costs that climate change policy places on the industry. Improving economic conditions have fed through, as the hon. Gentleman said, to a more successful year for most paper sectors. The data show that measures to help the paper industry have resulted in real growth in the sector. I want to comment specifically on what we are doing to help the paper industry with its energy costs and respond to what the hon. Gentleman said about the importance of job creation in rural areas. If there is time, perhaps I will give a little more detail on what we are doing to promote sustainable forestry.

The Government are increasingly concerned about the effects of high energy prices on the competitiveness of our energy-intensive industries, including paper. That is why we now make compensation payments for the indirect costs of the EU emissions trading system. We intend to make the first payments for the indirect costs of the carbon price floor this summer. Further measures were announced in the Budget: a cap of £18 per megawatt-hour on the carbon price support mechanism, which will benefit all sectors of the economy; and compensation for the costs of the renewables obligation and small-scale feed-in tariffs from 2016. That is the most significant policy cost affecting the price of electricity. The Chancellor also announced the continuation of the ETS and CPF compensation schemes until the end of 2020.

We have paid some £32 million in ETS compensation to 53 companies so far, across the UK, including £5 million to eight companies in Scotland, operating 17 sites between them. The paper industry shared £8 million between 28 companies, including three in Scotland: Ahlstrom Chirnside in the borders, UPM-Kymmene near Kilmarnock, and Tullis Russell paper makers, near Glenrothes. Those companies have been benefiting from the support that we are making available. I am pleased that paper, as an energy-intensive industry, is eligible for compensation across the whole spectrum of measures. The industry recognises that those Government support measures will save it up to £170 million over the coming years.

The hon. Gentleman said some important things about the role of the paper industry in helping to stimulate jobs in rural areas. That is a priority for the Government. We have introduced a range of policies and initiatives to promote growth in rural areas by helping to deliver new infrastructure, particularly broadband; by raising skill levels; and by supporting small and medium-sized enterprises. We are also trying specifically to support the rural economy by investing in rural tourism and supporting micro-enterprises. We have five pilot rural growth networks—not in Scotland but in Cumbria, in the north-east of England, and in the south of England—aimed at tackling specific barriers to growth in rural areas such as a shortage of work premises, slow internet connectivity and fragmented business networks. Those pilots are expected to create up to 3,000 jobs and support up to 700 new businesses. We want to share the lessons we learn from them with local authorities and local enterprise partnerships.

Tourism is an important driver of the rural economy. We must ensure that we are doing more to take advantage of the predicted growth in the tourism sector as a whole to ensure that the rural part of the tourism sector does not lose out. We are making funding grants available to tourism businesses to boost the rural economy through the rural economy growth review and rural broadband. We are also providing support for a high-quality tourism visitor economy through a £25 million package of support, including £6 million for partnership projects funded by the rural development programme.

I turn to the creation of sustainable forestry that can feed back into the industry. Forestry is a devolved matter, so any specific concerns the hon. Gentleman has relating to Scotland should be raised with the Scottish Government and Scottish Parliament. Throughout the United Kingdom, we are working to promote the future success of our woodlands by ensuring their sustainability. In January 2013, we set out our vision in a forestry and woodlands policy statement, which included our priorities for future policy implementation, focusing on protecting, improving and expanding public and private woodland, and recognising the multiple benefits that woodlands provide to the economy, to society and to the environment. Alongside that, we recognise that a strong timber industry helps to deliver the core objectives of protecting, improving and expanding woodland, and contributes to the growing strength of the rural economy.

[Guy Opperman]

We all agree that we need more forestry to cope with existing businesses and the enhanced and expanding subsidised biomass businesses. Post-world war one, we planted Kielder in my constituency specifically to accommodate the need for large forestry infrastructure. I am worried that the Government do not have the big project ideas for large forestry planting going forward. Will the Minister expand on that? It is very much what businesses that I speak to, including forestry businesses, are looking for a steer on.

[Michael Fallon]

My hon. Friend is right, and I will address the steps that the Government are taking.

The forestry industry makes a significant contribution. It provided some £230 million gross value added in the latest year for which figures are available, an increase of 52% over the two or three preceding years. We are committed to invigorating the woodland economy, bringing neglected woodland back into management and helping to create jobs and growth. We support and are encouraged by the new sector-led “Grown in Britain” initiative, which is creating increased market demand for British wood products. Although it was launched only in October 2013, it already has the support of 200 organisations, ranging from forestry suppliers, processors and product manufacturers to big-name high street retailers and UK construction firms.

“Grown in Britain” is driving a change in forestry that could see the management and new planting of woodland become more economically viable. Strengthening and expanding our forestry supply chains is not only creating new market opportunities but, crucially, creating an incentive for increased private investment in woodlands. We are working with “Grown in Britain” to pioneer ways of making it easier for businesses to direct their corporate responsibility investments into projects that improve the ecosystem services delivered by woodlands and result in more tree planting.

We are also making good progress in expanding the woodland cover across England. It is now as high as it has been since the 14th century. We want it to increase by planting the right trees in the right places for the right reasons. We also want more of our woodlands to be managed sustainably to maximise their public benefits. We estimate that if we work together with the sector, we could help to achieve 12% woodland cover by 2060, provided that private investment in woodland creation increases in line with our expectation.

We continue to do our bit in supporting woodland creation. The total area covered by the woodland creation grant in the year to March 2014 was 2,691 hectares, which is more than the seven-year rural development programme target of an average of 2,200 hectares a year. In this financial year, some £30 million of rural development programme funding is being invested, £24 million of it on management of the existing resource and £6 million for planting about 4 million trees on 2,000 hectares of new woodland.

Our woodland carbon code also provides a mechanism further to enhance private sector investor confidence in woodland creation projects for carbon benefits. More than 142 projects have sought certification to the code, representing more than 14,000 hectares of new woodland being planted that will sequester more than 5 million tonnes of carbon dioxide during its lifetime. That is a huge increase from the position a year ago and reflects the growing interest in domestic carbon emissions projects and the success of the woodland carbon code.

On improving woodland management, more than 50% of England’s woodlands are now managed under the UK forestry standard, which sets good practice guidelines for sustainable forest management. The UKFS is a world-class forestry standard administered by the Forestry Commission, and is the foundation for good forestry practice throughout the United Kingdom. It is therefore fundamental to the delivery of sustainable forest management. It provides a valuable toolkit for helping woodland owners to manage their woodlands productively and sustainably. Its application can lead not only to increased timber yields but to better flood risk management, the safeguarding of clean water supplies and the conservation and enhancement of biodiversity.

Our ambition is to increase the proportion of existing woodland under the UKFS. In our forestry and woodlands policy statement, we estimated that working effectively together with the sector could bring two thirds of woodlands into active management in the next five years, with the potential to reach some 80% if markets develop. Good progress is being made, and already the area of woodland under active management has increased from 52% three years ago to 55% in March this year. The key to bringing more woodland into such management is economic viability, and a range of measures are promoting sustainable woodland management, underpinned by the UKFS.

We are actively supporting the sector-led “Grown in Britain” initiative in its efforts to increase demand for and supply of British wood and wood products. Although still in its early stages, the initiative is beginning to make a difference. For example, to date some 19 major UK contractor group companies with a collective turnover of more than £24 billion have pledged to look into ways of procuring more British timber for their construction projects. Their buying power will help to stimulate demand for British wood products, which should lead to more woodland management and economically sustainable woodlands, and in turn to more private investment in woodlands, which we all want to see.

I am grateful to the hon. Member for Inverclyde for raising these important topics. The paper industry is important to us, and we recognise the challenges it faces and the high cost of the energy that it necessarily uses. I have outlined the measures we have taken to alleviate those costs. I have also explained how we see rural development as a major part of our economic recovery and our pilot work to improve the success rate of small businesses in rural areas. Finally, I have explained what the Government are doing to increase investment in private woodland and to drive up the proportion of woodland that is under active, sustainable management to increase the supply of timber to our own industries.