Today an interesting press release from Metla was released, as to how the paper and pulp mills’ cost structure is formed. As METLA has always said in the annual reviews, the exact cost structure is difficult to estimate, because of the differences between various paper and pulp mills. But this METLA research is very important in that sense, because it shows through realistic simulations a cost estimation model that shows what is the paper and pulp mills’ ‘critical point’. A lot of respect for the researchers. I am not able to review those studies which were published, but I do not see any mention of the relevance of labour costs in the press release. Thus, in my view, the quote below is the most important piece of the press release (emphasis and translation mine):
Although the results are based on calculations of a simulated case, it may be inferred that the pulp and paper demand and market prices largely determine the essential profitability of the industry. The decline of market prices of the products towards the profitability limit of the industry is a clear threat. However, the results suggest that the production can be profitable also in Nordic conditions.
This may mean, for example, as I have also told my dissertation, that it is not labor costs that greatly affect the competitiveness of the industry. More broadly, such as the Austrian WIFO Institute study shows (link), labor costs are largely over-estimated in their impact on competitiveness. In particular, for capital-intensive industries such as the paper industry, this is quite logical – especially as the productivity is so high. So, when it is once again time to negotiate collective agreements, it would be good to focus on factors that facilitate process-innovation, and other domestic investment.
Of course, the quote also mentions what was left out of the simulation, and for the Finnish paper industry, the transportation costs are pretty important. In addition to these, market prices are relevant, but like many of the industry’s news sources show, these market prices are largely determined by contract negotiations. This must be dealt with more extensively, but now this statement may be sufficient.