Pricing Policy of Forest Based Cellulosic Raw Materials for the Paper Industry in India

The state governments and the paper making companies have been entering into long term agreements which specify duration of supply of agreed quantities of bamboo and pulpwood, royalty rates (note price), extent and frequency of revision in royalty rates, etc. the royalty rates have been extremely low mainly because these products from natural forests were trated as free goods. Though the rates have been enhanced by 300 to 400 per cent during the last 10 years, yet the principles for determining them have not been specified in a logical and accepted framework. On the contrary, conscious and unconscious attempts have been made at evading the issues. In this paper, logic and practicability of a number of suggested bases for pricing (not royalty) have been assessed. None of them can fully satisfy the concerned parties but, in the short run, a combination of past and current royalty rates, general price index, market price of comparable goods, etc. can be used for fixing administered prices of the natural forest products used by the manufacturing sector. The most viable alternative in the long run could be the cost of production from manmade plantations. The total demand for palpable materials need not be met from manmade plantations. The yield from natural forests can be substantially enhanced, and possibly at lower marginal costs. Experiences of pricing the materials from plantation crops should be available in not too distant a future, and should be usable for pricing the materials from natural forests with adjustments for differences in harvesting and handling costs, quality, etc. Pricing of outputs from industrial plantations raised by the forestry system need not necessarily equal the production costs. Adjustments on lower or higher side may have to be made to achieve wider socio-economic objectives: reduction in quantity of chemicals, power, water, consumer per unit of the industrial outputs; changes in the mix of conventional and unconventional raw materials; etc. An exercise for assigning weights to the variables can be carried out to facilitate objective policy formulation. Some of the prerequisites for that would be dispensation of current tensions between governments/forestry system and the industry and their willingness to share the quantitative and qualitative information.