1 Brasilien innovation inom massa- och pappersindustrin

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1 BILAGA 1 (20) 1 Brasilien innovation inom massa- och pappersindustrin The pulp and paper is a branch of the forest-based Brazilian agribusiness industry that has shown tremendous growth in the country since early Currently, the production of pulp and paper strongly impacts the Brazilian economy, which takes a share of approximately 1.5% of Gross domestic product (GDP) as in generating hard currency by exporting products to foreign markets - which had a trade surplus of US $ 6.3 billion in The sector produced that year a total of 17.3 million tons of pulp and 10.3 million tons of paper. Socially, the sector has significant performance, and it is a great generator of jobs - 128,000 direct jobs and 640,000 indirect jobs. Currently, Brazil is the world's fourth pulp producer and the ninth in the production of paper. However, it is interesting to note that the overall performance of the sector is still not proportional to the fact that the country has very favorable climatic and soil conditions, available land and technology advanced forest, suggesting a substantially greater prominence potential. Noteworthy in this context that the wood used by the industry is extracted exclusively from reforestation for this sector covering in 2015, an area of 2.63 million hectares. Despite the fantastic exporting arm of the industry, there is a strong commitment to meeting the demands of domestic markets for pulp and paper, where imports occur only for products that our industry has not leveraged significantly more competitive, mainly due to scale production and size of markets. Such as the case of pulp production for fluff for diapers and sanitary napkins, bleached softwood kraft pulp (BSKP) and newsprint. However, this situation tends to change favorably due to the recent implementation of a new plant of the Klabin group in the municipality of Ortigueira, in the state of Paraná, for the manufacture also of fluff from softwood and softwood market pulp. There are also numerous opportunities for vertical integration in the production of various types of papers, with potential for export to global markets and that tend to happen as logistics facilities and the difficulties of Brazil's cost 1 are resolved. It is important to note that the market pulp export occurs to a significant volume, while the paper is very fragmented requiring even more efficient logistics. The Brazilian pulp and paper industry is robust, organized and technologically efficient, these characteristics make it highly competitive and able to export pulp to demanding global markets such as North America, Europe, Asia and Latin America. Competitiveness is less intense in the paper side due mainly to a strongly fragmented marked, as the country is distant to the primary markets. So there are few examples of local paper production for the world market. Therefore, the production focuses on the domestic market, where producers export mainly to neighboring countries. TA400, v3.2, In 2015 alone, in ation in the planted tree sector measured by the National Forest Activity Cost Index (INCAF-Pöyry) was 12.8%, while national in ation measured by the Broad National Consumer Price Index (IPCA) was 10.7%. Consequently, costs in the industry grew 2.1%, more than the average increase in costs and prices in the Brazilian economy. O:\VU-avd\Information\Publikationer\Svar direkt\2016\svardirekt_2016_26 Massa- och pappersbruk\bilagor (endast till hemsidan)\brasilien slutlig i mall.docx

2 BILAGA 2 (20) 2 Country profile - Sector in numbers The year 2015 was challenging for the Brazilian economy, as the gross domestic product (GDP) decrease of 3.8%, the greatest loss since 1990, and is expected to drop 3.3% in Led by the dollar that almost reached R$ 4, and the inflation rate was above 10%, that promoted an increase in the interest rate to reach 14.3%, its highest level since The sum of these elements discourages investments and raised unemployment to 9%. Most sectors of the economy retracted, most notably the 6.2% decrease in industry and 2.7% in the service sector. The only area that registered growth in the period was agriculture and livestock with an increase of 1.8%. Despite this scenario, Brazilian pulp and paper industry showed high resilience and thereby helped to mitigate the impact of the country s weak economic performance. The following sections will present the status of pulp and paper production in Brazil. 2.1 Pulp and paper production The Brazilian pulp and paper industry have maintained significant growth rates. For instance, domestic pulp production in 2015, was 17.4 million tons, 5.5% greater than in 2014 (see figure 1). With this result, Brazil maintained the fourth place among countries that produce pulp of all types (see Table 1), but should become the second by the end of 2017, with the start of operation of Klabin s new plant last March and the expansion of Fibria s unit in Três Lagoas, Mato Grosso do Sul, in late Therefore, Brazilian annual installed capacity will increase to 20.9 million tons from 17.4 million tons in 2015, surpassing China and Canada, the current second and third biggest producers. Regarding destination of the pulp, Brazil exports 64% to its main clients (Europe, China, United States and Argentina). Figure 1 Historical production and consumption of pulp in Brazil Source: ibá, SECEX and Poyry (2015).

3 BILAGA 3 (20) Table 1 Main pulp producers worldwide in 2015 On the other hand, paper production has marginally decreased after years of constant growth. In 2015 paper production reached 10.3 million tons, 0.4% less than The main reason for this performance was the retraction of domestic sales as shown in figure 2. Figure 2 Historical production and consumption of paper in Brazil Source: ibá, SECEX and Poyry (2015) The production of packaging and specialty papers increased by 1.8% and 2.5% respectively, while tissue paper, paperboard, newsprint, and printing and writing paper decreased as shown in Figure 3 Variation of Brazilian paper production in 2015.

4 BILAGA 4 (20) Figure 3 Variation of Brazilian paper production in 2015 Source: IBÁ, SECEX, FAO and POYRY (2015) Although the paper production has fallen, Brazil still holds 9th place in the ranking of the largest producers, marginally behind Sweden and Finland (See table 2). Table 2 Main paper producers worldwide in Economic numbers Despite the fact that Brazilian economy retracted in 2015 (figure 4), the GDP of the Brazilian planted tree industry (pulp and paper included) reached R$ 69.1 billion, an increase of 3.0% over the previous years.

5 BILAGA 5 (20) Figure 4 Yearly variation in brazilian GDP Source: IBGE (2016) The sector performance exceeded other areas of the Brazilian economy such as agriculture/ livestock (+1.8%), industry (-6.2%), and services (-2.7%). With regard to the Brazilian GDP, the planted tree industry closed 2015 with a 1.2% share of all the wealth generated in the country and 6.0% of the industrial GDP as shown in figure 5. Figure 5 Change um GDP of the planted tree industry versus other sectors of the brazilian economy, 2015 versus 2014 (%) Source: Poyry and IBGE (2015) The contribution to trade balance is also positive, in 2015 the net trade was U$ 5.3 billions for pulp and U$ 1 billion for paper (see figure 6). Regarding taxation, only in 2015 over R$ 6 billions was generated in federal, state and municipal taxes.

6 BILAGA 6 (20) Figure 6 Balance for the segments of the planted tree industry, 2015 (%) Source: Poyry and Secex-MDIC (2015). 3 Industry competitiveness The Brazilian high competitiveness in pulp production is a result of elevated forest productivity, continuous improvement of eucalyptus as a fibre source for different applications, and a large economy of scale with modern mills. As figure 7 shows, the eucalyptus and pinus productivity in Brazil is the highest among a selection of big pulp producer in the world. Wood accounts for the lion's share of the pulp production cash-cost: between 45% to 66% (Wood Resources International). Figure 7 Pulpwood productivity (m3/ha ano) in selected countries Source: ABRAF (2013)

7 BILAGA 7 (20) This is a result of continuous development by both private and public research centres in improving the productivity of Eucalyptus. The results of this effort, started in 1070s, are expressed in figure 8. Figure 8 Productivity trend of eucalyptus in Brazil since 1970 Another component of the Brazilian competitiveness comes from the installed capacity of large and new mills leading to an economy of scale of invested capital, also from the efficient use of chemicals and environmentally friendly processes. The Brazilian position in the world is shown in figure 8. Figure 9 Brazilian pulp mills capacity The mills are also close to the forest and have relatively easy logistics to the harbours, although some state-owned ones may be notoriously known for being sluggish. According to a report of Hawkings-Wright (2013), the primary challenge for the for pulp producers continues to be under-investment in infrastructure. The new government (Michel Temer,

8 BILAGA 8 (20) 2016) has pledged to unleash infrastructure investments through public, private partnership, PPP, as the governmental budget has little room for investment. According to Toivanen and Toivanen, private and public sectors also cooperated to create efficient mechanisms to transfer the best available scientific and technological solutions from abroad to Brazil in other areas of the technology, e.g. industrial production. If all these are taken into account, Brazil presents the lowest cash-cost among the largest pulp producer in the world, as shown in figure 10. Figure 10 Cash-cost breakdown for pulp production in selected countries Brazil is not a significant exporter of wood chips (at least not to the same extent as a pulp exporter) because freight is a considerably costly. As wood chips are much bulkier and wetter than pulp, the export of pulp makes a more cost-efficient alternative. Differently from sugarcane mills, most pulp mills own most of their forest, but leave a small share (20% for the industry as a whole) for third party providers (Valor Econômico, 2011). There is no limitation of how much forest a pulp mill can own, but it is considered a good policy to have third party providers, as it nourishes good relationships. There are also factors that play against brazilian competitivity in pulp production. For instance, not all areas can be used for forest plantation. Areas near creeks, rivers and lakes are not allowed for plantation, and larger chunks of land are considered protected areas to let the original forest to recover. If it is taking into account the areas destinated to roads and other needs, it will be available only a proportion of approximately 60% of the total area to the plantation. That has led to the typical mosaic plantation pattern as shown in figure 11.

9 BILAGA Figure 11 Mosaic plantation of eucalyptus and recovered native forest Source: Suzano Pulp and Paper. There is also a legal limitation for foreign buyers of land, what may have kept Portocel (Valor Econômico, 2014) and Stora Enso (Sociedade de Investigações Florestais, 2013) out of investing in Brazil. 4 Strategies In the beginning of year 2000s, the forestry industry specially those located in the Northern Hemisphere started facing a significant loss of profitability due to decaying and maturity of some of its markets. With the increase penetration of internet, there was a tremendous decrease in newsprint consumption in the development world as shown in figure 12. Furthermore, there were concerns that would also happen with other kinds of paper such as printing and writing. Nevertheless, concomitantly, there were growing concerns with sustainability mainly in connection with global warming. That is considered to be associated with the increasing concentration of (mainly) CO2 in the atmosphere, which is caused oil as a fuel. 9 (20)

10 BILAGA 10 (20) Figure 12 Life cycle curve for different pulp and paper markets It was the association of these two effects that led several of the largest companies to put effort in the development biorefineries, to produce biofuels and green chemicals, associated with their industrial units. Considerable effort has been put into finding sustainable new products based on innovation, and that has been, ever since, the strategy of the Nordic forestry industry. Presently, Stora Enso strategy is to be a renewable materials company with focus in this growing market. It created a large biorefinery research centre in Stockholm, and also invested in lignin production, sugars from alternative sources 2. Other Northern Hemisphere companies are also concerned to sustainability. For instance, Billerud's strategy is to challenge conventional packaging for a sustainable future, and it is investing heavily in innovation. For SCA, innovation drives growth and profitability and is one of the company s three strategic priorities. In contrast, as highlighted by CGEE (2013), given the strong competitiveness position for pulp production in Brazil, and the right characteristics of eucalyptus pulp, production growth is the strategy of the big players in the Brazilian pulp and paper industry, except for Klabin. Therefore, Brazilian pulp companies have always focused their new cycle of expansion on the production of the commodity. Nevertheless, lately, most Brazilians large market pulp producers have been forced to look into the biorefinery route, as well as making a stronger effort to innovate. These changing in behaviour come mainly from three reasons: the worldwide strategy towards biorefinery, the fact that there is less and less room for the Brazilian companies to keep expanding, and the increasing concerns with the significant price decrease of the BEKP. Accordingly, Mariano (2015) pointed out that biorefineries strategic decisions may lead to different types of mills in the future, in contrast to the current standard Kraft plant model with market pulp and power production used in Brazil. 2 A process developed by Virdia, an American company acquired in 2014.

11 BILAGA 11 (20) 4.1 Traditional areas Although the Brazilian companies enjoy an advantage in the wood cost, the forestry sector value chain in the Nordic countries involves sawmills, which gets the highest added-value parts of the wood. The bark and the fines are used for pellets as biofuels (Lundmark and Söderholm 2004). Furthermore, the Nordic companies have better logistics to a huge market for paper, the European market, and usually are integrated with paper production. Development in Brazil has mainly been concerned with cost reduction to keep the Brazilian advantage. In the forestry side, that means increase the eucalyptus productivity, by finding continuously the better clones and by improving the whole forestry process which includes logging and harvesting. In the industrial side, companies are constantly endeavouring to take in the latest proven technologies in order to reduce cost production. Some companies call themselves fast followers to elucidate that. Some more high technological development has also been done. Recently, CTNBio 3 authorized Futuragene, an israeli research company acquired by Suzano in 2010, to start plantation of genetically modified eucalyptus in Brazil for commercial purposes. Some individual current strategies of the larger players in the Brazilian forestry industry are worth highlighting. Klabin is the only big Brazilian player in the pulp and paper industry that has an alternative growth strategy in contrast to market pulp as mentioned above4. It has decided to invest in the packaging market, producing sack paper, kraft liner, folding box board and liquid packaging board as shown in figure 13. Figure 13 Different markets' sizes and growths, with the elected markets by Klabin International Paper, an American forestry company, has a strong presence in Brazil. It has concentrated in producing uncoated print and writing paper rather than producing market pulp. In fact, it exchanged an ongoing 1.5 mm tpy greenfield project (Três Lagoas Project) for VCP's Luiz Antonio. (VCP later merged with Aracruz to become Fibria). The International Paper made a papermachine adjacent to the project. So, they now have three mills in Brazil producing 1mm tpy uncoated paper. This decision followed global concern 3 Authority responsible for allowing the cultivation of genetically modified plants in Brazil. 4 It has just started a major market pulp mill in Ortigueira. It may be only temporary, as it needs the pulp to continue a growth strategy in the liquid packaging board and sack paper markets.

12 BILAGA 12 (20) IP's strategy is to concentrate on uncoated papers and packaging businesses. IP has the option to build a yet another papermachine, but so far has not decided to do so. Suzano until recently has been mostly focused on growing on market pulp, e.g. it made a new 1.0 mm tpy production unit at its existing Mucuri mill in 2007 and a greenfield 1.5 mm tpy mill in Imperatriz in Even though, it has also acquired Fibria's half of Conpacel mill, which produces both paper and market pulp. Nevertheless, more recently, it has focused on improving the competitiveness of its existing mills and to build on adjacent business. Fibria follows Aracruz original strategy to produce market-pulp. So, by joining with VCP, it had two paper mills, which it eventually divested. It is now in-progress building a second unit of 1.95 mm tpy to its Três Lagoas, after recovering from a long deleveraging period. It is world's largest eucalyptus market-pulp producer. Brazil is known to be a protective country with respect to the production of industrialised goods. That affects also the paper production with one distinction. All paper that is destined to be used in the printing of books, newspapers, periodicals and other similar finished products is exempt from paying import taxes. In contrast, commercial paper is submitted to the regular import process. Commercial paper is destined to be sold in reams for printing, writing and to be used in advertisements. Hence, local producers of paper in Brazil benefit from protection in some markets. Accordingly, most of paper production in Brazil targets the internal market, and being the market not so big to support the large state-of-the-art papermachines, frequently paper mills have very fragmented paper production. Few are the examples to benefit from the gains of scale and the availability of the local pulp production. In contrast to the paper market, there is little protection for the import of market pulp. It has little impact, however, as Brazil is so competitive in this market. Indeed, even in the very few markets of pulp where Brazil is an importer, such as fluff, recent investments of Klabin and Suzano should impact in a decrease of the imports. 4.2 New products and process As of today, most of the world's production of BHKP is already produced in low cash-cost countries, i.e. Brazil, Indonesia, Chile, and Uruguay. Thus, there are increasing concerns about price depression due to an oversupply of BHKP. The official target was to substitute long fibres, which enjoy higher market prices. Indeed, this has to be the case for fluff, which up to November 2015 was only produced from long fibres. Suzano started the production of 100,000 tpy of Eucafluff, fluff made with eucalyptus pulp. A strong movement to substitute fluff from long fibres, of higher prices. Klabin has also addressed the fluff market, but that is done with long fibres from pine, a softwood. Brazil imported 282,000 t in 2014 of the product, mostly from the Southern USA. With its new 400,000 tpy production capacity, Klabin will have to turn to the external market to find customers for the exceeding production. This company starts at this marked already being the fourth largest producer as shown in figure 14.

13 BILAGA 13 (20) Figure 14 World capacity of fluff Source: Klabin Suzano has a clear defined strategy to expand into an adjacent business, which includes Eucafluff, biorefinery, and others such as the production of jumbo rolls for tissue paper. Accordingly, Suzano is in-progress to building the Latin America's first industrial lignin extraction plant with a production of 20,000 tpy starting production in August 2017 (see figure 15). All the technology of the lignin plant is being developed by Suzano researchers based in Brazil. Figure 15 Suzano's strategic presentation for its lignin business Fibria, for instance, is looking into bio-oil. Recently has announced a substantial investment in the construction of a pyrolysis plant. According to Fibria, bio-oil could present competitive prices as shown in figure 16.

14 BILAGA 14 (20) Figure 16 Bio-oil from eucalyptus pyrolysis can be competitive in comparison to oil fields in North America Source: Fibria Fibria has also shown interest in the lignin market. In 2015, it bought the earlier bankrupted Lignol and had stressed the importance of Lignol's patents and Lignol's highquality lignin as a complement for the kraft lignin it can produce from its black liquor. Nonetheless, It has not yet announced intentions of building a plant. Differently from Suzano, Fibria buys new technologies instead of developing in house. Eldorado is the only big Brazilian player that is solely focused on increasing its pulp production and has none official innovation strategy. Eldorado started its production in 2012, and it is already the third largest BEKP producer in Brazil at 1,5 MM tpy. It has announced a new production line of 2,0 MM tpy to start production in Nevertheless, Eldorado may have difficulties obtaining resources for this new investment, as two principal investors, two state-owned company pension funds, decided to sell its position (worth 17% of the company's capital) at Eldorado. 5 Innovation process 5.1 Companies The innovation process in the pulp and paper industry in Brazil seems to be changing rapidly in the last ten to five years. Brazil has a long tradition of development in the forestry area mostly in close cooperation with Brazilian research institutes and universities due to the idiosyncrasies of the forestry sector for this industry in Brazil as mentioned in the previous sections. Nevertheless, lately, there has been considerable change in the industrial development. Development in the industrial area (in contrast to growth in forestry side) included just incremental and happened either internally or together with machinery and chemical suppliers. That continues even today, but new groundbreaking research in the relatively

15 BILAGA 15 (20) new area of biorefinery is taking place in new collaborative constellations including national and international research centres, universities, start-ups and companies from other industries in precise accordance with the open innovation concept. Institutional support has followed suit with fundings targeting developments in biorefinery both in existing research institutions, but there was also the creation of new ones. According to Painel Florestal (2012), Suzano has invested strongly in open innovation, where it works in collaboration with several companies, universities, and research institutes. Amongst the more frequent collaboration are Brazilian universities such as Unicamp, USP São Carlos, UFSCar and UFV, but there are also international ones such as Hamburg University, Centre Technique du Papier in France, VTT in Finland and University of North Carolina, in the USA. At the time the company had 51 external partnership contracts. Fibria also has several national and international open innovation collaborations through its Technology Centre (Sul Bahia News, 2014). It has recently been known to the market that it is collaborating with Embraer, an airplane maker, on carbon fibre production (Epoca Negócios, 2014). Fibria has also mentioned that there are collaborations with the companies in the chemical, cement and tires industries. Since many years, it is a member of Innventia, a Swedish research institute in pulp and paper. Klabin is also a member of Innventia, but it is only recently that it is investing more consistently in (industrial) innovation. It announced in 2015 that it would invest 70 MM R$ over three years in an innovation centre to be launched in 2016 (Kablin, 2015). That investment includes development in forestry, incremental research and more innovative areas such as research in biorefinery, e.g. biofuels, biochemistry and nanotechnology. Even smaller producers such as Irani mentions that they rely on open innovation with suppliers, universities, research institutes. It has also financed graduate students in universities. 5.2 Research Institutes and Universities There have also been improvements in the research institutes network in Brazil. New dedicated research institutes such as Brazilian Bioethanol Science and Technology - CTBE, Embrapa Agroenergy and several units of the Brazilian National Service for Industrial Training - SENAI has been created over the last decade. CTBE is a research institute dedicated to developments of the process of secondgeneration ethanol plants. It has good collaboration especially with big Brazilian and International (established in Brazil) chemical companies. However, few sugar and ethanol producers work in partnership with the Institute. That may be partially due to the long existing Centro de Tecnologia Canavieira, CTC (earlier called Coopersucar). Embrapa, a multi-area research company, financed by the Ministry of Agriculture, has several laboratories around the country. In 2010 is was opened a new one focused on biomass energy, so-called Embrapa Agroenergy, which works with the development and innovation of biomass conversion into biofuels and other bioproducts. SENAI is a network of industrial training units that created several innovation centers, "SENAI Inovação," with the main objective to improve the productivity and the

16 BILAGA 16 (20) competitiveness of the Brazilian industry employing innovative solutions (Portal da Industria, 2014). Until 2017 there will be 25 units of SENAI Inovação, amongst them, the most relevant, for the pulp and paper industry, is the Institutes of Biosynthesis, Green Chemistry, and Biomass. Partnership with this Institute will be strategic to the development of technology and training of personnel. The Instituto de Pesquisas Tecnológicas (IPT) is a multi-purpose research centre located based at the University of São Paulo (USP) in the city of São Paulo. It has now an advanced laboratory of high-performance materials, which is entitled to perform developments and innovations funded by resources of Brazilian Agency for Industrial Research and Innovation - Embrapii (more details in the public policies section). Last, but not least, the Laboratório de Celulose e Papel da Universidade Federal de Viçosa (UFV), is an internationally renown laboratory covering most of the standard areas of pulp and paper productions, but also in some areas of biorefinery, more specifically in the recovering of and characterization of hemicellulose. All the mentioned research institutes have prominent research to the pulp and paper sector, high-level publication, high skilled staff and top quality laboratories. Nonetheless, there is still a gap between these research institutes and pulp and paper companies. Collaboration is not straightforward. Therefore it is necessary a lot of political incentives and actions to promote a higher level of cooperation and joint effort to develop innovation. Furthermore, the Centre For Strategic Studies and Management made a study that shown the necessity of the creation of technology center dedicated to research on biorefinery to the pulp and paper sector (CGEE, 2014). 6 Public Policies An emerging economy, Brazil has the world s 9th largest economy. It weathered the global economic downturn well, but growth has slowed over the last four years. To increase economic performance, the Greater Brazil Plan (PBM) , put innovation as a key point in Brazilian development. Over the last decade, several innovation incentives and institutions were created to boost innovation. Such as the Innovation Law from 2014, that allows tax returns to companies that invest in research and development, and stimulates the creation of innovation funds. Earlier this year was launched the National Strategy for Science and Technology, among the strategic area, is bioeconomy with a focus on biotechnology and biorefinery for pulp and paper. Concerning new institutions to stimulate innovation, the most important to mention is the Brazilian Agency for Industrial Research and Innovation - Embrapii. It is Social Organization - OS connected to the Ministry of Science, Technology, Innovations and Communications (MCTIC) and to the Ministry of Education (MEC). Embrapii operating model enables quickness, flexibility and reduced risk in supporting companies RD&I projects. The non-refundable grants managed by EMBRAPII are invested in projects carried out by companies and research institutions. Its funds are available exclusively for innovation projects, and the inversions are made in a similar fashion to Fraunhofer, as Embrapii can provide a non-refundable grant up to ⅓ of total investment. Even though, all

17 BILAGA 17 (20) the mechanisms cited can be accessed by the pulp and paper industry and research institutes; currently, there is no dedicated policy to this sector. The growth and development of pulp and paper industry depend, heavily, upon investments that can finance all the stages of the project development; from the land purchase to constructing infrastructure. The federal government has maintained financial instruments containing lines of credit through Brazil s Central Bank and Banco do Brasil, among other BNDES - accredited institutions. Between 2007 and 2015, projects to plant 2.8 million hectares of trees for industrial purposes were carried out in Brazil; for instance, the BNDES' Investment Support Program - PSI put over R$ 79 billion in variable income loans. Pulp and paper sector was responsible for accessing 11% of it. Another example is the Chemical Industry Development and Innovation Plan - PADIQ, although it is destinated to the chemical industry, the technology development under this program is very beneficial to a Pulp and Paper sector moving towards biorefinery routes. There is no doubt that BNDES have been a strategic tool for the development of the pulp and paper sector in Brazil, PSI and PADIQ are only two examples of many programs of the Bank that can be accessed by the sector. A list of other programs is detailed in table 3. Table 3 Main lines of financing for the planted trees sector offered by BNDES

18 BILAGA 18 (20) 7 Final remarks The Brazilian pulp and paper industry as such is very heterogeneous. On the one hand, Brazil is very competitive in the production of pulp, due to its high productivity of wood and availability of large and state-of-the-art mills. Considerable research is conducted to improve the productivity in the forest and the factory. Brazil is a benchmark in many aspects in this industry. On the other hand, the paper side of the industry is partially protected and concentrated in the regional market. Few examples leverage the strong competitiveness of the pulp market in the paper industry. The production of liquid packaging board by Klabin is probably the only real example of a Brazilian company competitive in the world of paper and board market. In the pulp market, there is at least half a dozen in that position. Brazil is competitive too, at least regionally in the market for uncoated wood-free paper, thanks to its high BEKP composition and homogeneity in the paper formats. A larger opening of the market would be good for the country to concentrate on the paper markets, where it has the most significant comparative advantages. An increase in exports should compensate for an advance of imports of less competitive grades. Risks of an oversupply of BEKP and possibility of demand reduction may lead Brazilian forestry industry to find new applications just as their equivalents in the Northern hemisphere. Brazilian companies, which were overly fast developers a decade ago, start showing incipient aspects of pioneering. There is an intensification of efforts in research and development at research institutes and private companies to develop new products and process in areas that usually were only conducted by companies in the developed world in the Northern Hemisphere. The most emblematic investments are lignin, nanocellulose fluff produced by short fibres. Fibria's acquisitions of Lignol and stakes at Ensyn also show a higher degree of pioneering even though the process was developed in North America. Nevertheless, Brazilian companies still invest relatively too little in innovation and development compared to their leading competitors in the Northern hemisphere. There was significant evolution in the public policies to encourage more risk taking from the big players at earlier stages of the development of new processes and products. Programmes like PADIQ help Brazil take risks of the earlier stage projects, a clear disadvantage in the Brazilian market in comparison with more mature markets in the development world. New research institutes targeting new bioprocesses and bioproducts were created. Older ones were redirected to become more innovative. There is still a long way before they reach the world's top tier. Resources for biorefineries research in universities and research institutes is more abundant than before, and there is a good supply of masters and doctors on biorefineries and bioproducts issues with international experience. There remain a lack of older more experienced researchers. These are scarce and therefore expensive even in absolute terms. Capital costs, a chronicle problem of Brazil, is still a big hurdle to accelerate investments, as only investments with returns fairly above the real interest rate make financial sense. The Real, the local currency, is considered too volatile, a source of risks that may chase away investors especially of foreign origin.

19 BILAGA 19 (20) Infrastructure in logistics precarious especially in the inner areas of Brazil. Freight costs from certain regions in Brazil may make some business impossible in spite of the enormous competitiveness of the forestry production. Companies also complain from bureaucracy, and large exporters have great difficulties in recovering IVA-equivalent taxes from local raw materials used on exported ones. 8 References CGEE CENTRO DE GESTÃO E ESTUDOS ESTRATÉGICOS. Nota técnica: O desenvolvimento da biorre naria no segmento de celulose e papel. Programa demonstrativo para inovação em cadeia produtiva selecionada: celulose e papel, Brasília, CHESBROUGH, H. Open Innovation The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, Datamark, Epoca Negócios, epocanegocios.globo.com/informacao/resultados/noticia/2014/07/fibria-saiu-da-lona.html Hawkings Wright, Outlook July 2014 Sociedade de Investigações Florestais, Investe SP, Irani SC, Kablin, Mariano, A. (2015) How Brazilian Pulp Mills Will Look Like in The Future, O PAPEL vol. 76, num. 6, pp JUN 2015 Painel Florestal, Portal da Industria, i.pdf Protal da Industria, SECEX-MDIC, Sul Bahia News,

20 BILAGA 20 (20) Valor Econômico, Valor Econômico,