Of the more than 600 billion pounds of paper used around the world every year, one-third of that goes into the manufacture of paperboard packaging, says the Center for Paper Business and Industry Studies at Georgia Tech. In the past three years (ending in July), paperboard prices have gone up 21.2 percent, according the Bureau of Labor Statistics Producer Price Index. The price of uncoated bags has increased by 12.5 percent, coated bags by 13.3 percent, paper and paperboard cups by 20.3 percent, and paper napkins by 16.5 percent.
The Freedonia Group, an Atlanta market- research organization, projects the demand for foodservice disposables (beverage cups, sandwich, salad, and french fry packaging; pizza boxes; napkins and towelettes; and carryout bags) in quick-service restaurants will increase by 3.4 percent per year. Advertising Age magazine recently reported that “the price of paper pulp to produce popcorn tubs has jumped 40 percent in the past 36 months, making the tub more expensive than the corn in it.”
Historically, end users would compensate for higher prices in paper packaging by turning to plastics. Now, though, even if environmental issues were not a factor, there is little price advantage between the two.
This year, most of the major suppliers of paper packaging, including International Paper, Georgia Pacific, and Solo, hiked prices twice by July, with an almost unheard of third increase (the largest yet) in late August/early September, says Michael Allen, president of Strategic Alternatives, a Collierville, Tennessee–based distributor of foodservice disposables such as cups, insulated sleeves, beverage carriers, paper bags, napkins, and towels.
“In a normal year, you might see two increases,” Allen says. “Also, typically, increases are in the 5 to 7 percent range, while recent increases are in the 8 to 9 percent range.”
Despite recent decreases in oil, transportation, and some raw material costs, says Strategic Alternatives on its PreDisposed blog, the best end users are likely to see in the coming months is a “pause in price increases for disposables.” And that will only happen when disposables manufacturers are convinced that their costs have stabilized. However, don’t expect to pay less for those disposable products even then. The blog cautions, “Rarely (if ever) do disposables manufacturers lower their prices.”
When asked to comment about the paper-pricing situation, almost all of the major manufacturers either declined or did not respond to interview requests. One representative bluntly answered, “Don’t hold your breath” for a callback. Only Boise Inc. (formerly Boise Cascade) was willing to speak on the subject.
Daniel Brown, director of marketing and strategic planning for Boise’s specialty papers businesses, which provides coated and uncoated flexible packaging papers for quick-service applications such as grease-resistant and waxed wraps, pouches, and pinch-bottom bags, does not agree with PreDisposed that prices will never come down. But, he says, some prices for material components are not likely to plateau until second quarter of 2009. He attributes the gap between lower energy costs and the stabilization of paper prices to the “pass-through or trickle-down” effect as recent higher resource costs continue to make their way through the supply line.
For example, a breakdown of cost components provided by Boise showed hardwood pulp jumped 16.5 percent between second quarter 2006 and the same period 2007, and 8.1 percent from second quarter 2007 to 2008. Softwood pulp rose by 11.2 percent between second quarter 2006 and 2007, and by 13.7 percent 2007 and 2008. Residual wood chips from lumber production, the major component used in papermaking in the Northwest, increased by 48.4 percent between second quarter 2006 and 2007 and another 14.9 percent between 2007 and 2008. The slump in housing construction has also resulted in a shortage in the supply of chips. Even the domestic supply of recycled fibers is shrinking as demand from foreign markets grows.