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PARAGRAPH 409-NEWS PRINT PAPER.

TABLE 14.-Free and dutiable print paper and pulp for 1912.

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TABLE 15.-Comparison of paper exports and imports for 1912.

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1907. 1908. 1909.

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TABLE 16.-Quantities of print paper imported and exported for five years.

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REPORT ON THE PULP AND NEWS PRINT PAPER INDUSTRY BY THE TARIFF BOARD.

WASHINGTON, January 17, 1913. The report is generally accepted by the manufacturers as correct in almost every important feature and as absolutely conclusive as to the power to destroy the industry that would be given to Canada by removal of our duty, even though we had access to her Crown lands. This conclusion is based on the facts demonstrated in the report that the cost of wood is about $5 per ton of paper less for the average Canadian mill than for the average United States mill, and the cost of paper $5.35 less.

PARAGRAPH 409-NEWS PRINT PAPER.

The gist of the whole report is:

First. That every mill in the United States pays more for pulp wood than the average cost in Canada, and that the average difference is indicated to be over $4 per cord.

EXCESS COST IN UNITED STATES.

Second. That 100 per cent of our ground-wood pulp costs more to make than the Canadian average cost, and that our average cost is $5 per ton more than the Canadian.

Third. That about 90 per cent of our sulphite fiber costs more to make than the Canadian average, and that our average cost is $5.50 per ton more than the Canadian.

Fourth. That at least 77 per cent of our news-print paper costs more to make than the Canadian average, and that our average cost is $5.35 per ton more than the Canadian average.

The data for the United States cover, besides many pulp mills, paper mills making 940,478 tons per annum of news-print paper, or about 80 per cent; the data for Canada cover practically the same percentage. Thus the field was fairly completely covered, and the result would not be substantially changed by the 20 per cent not investigated.

If comparisons are made of the costs of production given in the report, with prices paid by the purchaser, either given in the report or coming from any other source, the fact should not be lost sight of that the expenses of selling, general administration, depreciation, and interest are not included in the costs.

PRODUCTION OF PULP AND PAPER IN THE UNITED STATES.

Great increase in product.-A United States census bulletin recently published attests the great growth of the industry as a whole, and particularly the newsprint division, during the 10 years preceding. The value of all paper and pulp products was in 1899, $127,327,000, and in 1909, $267,869,000, an increase of $140,542,000, or 110 per cent. The annual tonnage of news paper in rolls for printing increased from 455,000 tons to 1,091,000 tons, or 140 per cent, thus much more than doubling in 10 years, while the value increased from $15,755,000 to $42,807,000, or from $34.63 per ton to $38.96; i. e., $4.33, or only 12.5 per cent, in 10 years.

Far-reaching effect of reciprocity. The reciprocity program not only places all news-print paper on the free list, but about three-quarters of the whole industry. The very portion that is most in need of protection, viz, that made from wood, is to be exposed to our most formidable competitor. The manufacture of news print and several other grades of paper must be largely surren dered to the Canadians, and the whole industry will be shaken to its foundations. If the duty had been taken off 10 years ago, instead of this enormous addition to the national wealth, it is extremely doubtful if the industry would have more than held its own and remained stationary. Under existing conditions, if the duty is now removed, it is certain that not only further development will absolutely cease in news-print paper production and kindred grades, but also that production will positively recede. Is this a matter of indifference to the people of this country? It is not too much to say that the committee has the fate of this industry in its hands. To say nothing of the loss inflicted on stockholders, there are about 100,000 people employed in the industry, very many of whom will be injured by loss of work, partially or completely, and loss of their investment in homes.

COST OF PRODUCTION IN THE UNITED STATES.

Normal cost proper basis for protection.-Table 5 shows the cost of production of ground-wood, sulphite-fiber, and news-print paper in the United States by classified rates of cost per ton and the percentage of output at each rate. This is a most important table, as it allows persons with divergent views as to the degree of protection proper to be afforded to determine each for himself where the line should be drawn; i. e., what proportion of the industry should be protected. If protection is to be based on the average cost, it means that one-half of the industry will be unprotected. This is a most exacting standard. If two78959°-VOL 5-138

PARAGRAPH 409-NEWS PRINT PAPER.

thirds is to be protected it leaves one-third exposed and to shift for itself as best it can. By glancing at the last column of Table 5 it is easy to see what is a normal cost as distinguished from the average cost; thus the average cost of news-print paper is $32.88 per ton, but I would call the normal cost $34. A duty fixed on this basis would leave about 33 per cent unprotected. In an industry that has increased 140 per cent in 10 years it is fair to assume that at least two-thirds of the plants must be reasonably efficient, and thus entitled to protection. Any more rapid elimination of plants would simply be wastefully annihilating capital, as the meager profits prevailing in this industry render it impossible to get a complete return of the capital invested without prolonging the life of the plant and equipment to the utmost limit. The larger the profit the more rapidly an industry can and will make replacements in equipment. On the basis of leaving one-third of the productive capacity entirely without protection and protecting only the normal cost of, say, $34, the duty on newsprint paper without any allowance for profit, should be $6.50. This would still give the average existing Canadian mill an advantage over one-third of our mills in our market, and the Canadian mills of the future will produce paper cheaper than their average mill of to-day.

The wide range in the cost from $24.50 to $43 per ton is partly explained by the wide range in the cost of ground wood pulp, due to variations in cost of wood and irregularity of power, and, in the cost of sulphite, due to variation in the cost of wood and in the size of digesters, both of which variations are carried into the cost of paper, and is further explained as to the item of labor by Table 6, which shows a wide range in the cost of labor in both kinds of pulp and paper, but the per cent of very high and very low labor is small, the cost for the greater part being uniform.

Extreme costs misleading.—Finally, Table 5 shows in the total costs of production that the percentages at both major and minor extremes, not only in regard to paper but pulps, are small, and also shows that the great bulk of each kind of product is produced within comparatively narrow and reasonable ranges. These extreme costs are thus exceptional and should be disregarded, and attention concentrated on what appears to be the normal costs. This is a more practical and common-sense way of looking at the subject than considering abnormal conditions.

This study of the industry as a whole is not only pertinent, but necessary, as the Tariff Board does not pretend to say or recommend what duty is justifiable or desirable. This committee is not charged with fixing the duty on pulp or paper, and it is therefore proper that we should point out to the committee what, in our opinion, constitutes a true measure of the protection which is our due, and of the injustice to us that this reciprocity bill carries with it.

COST OF PRODUCTION OF PULP AND NEWS PRINT IN CANADA,

By referring to Table 8 it will be seen that there is similarly a large variation also in Canada in the total cost of pulps and paper and in the various items of cost, although not as large as in the United States, which latter fact is principally accounted for by the more uniform price of wood and of labor conditions in Canada.

Lower cost in Canada due to cheaper wood.-Referring to Table II, the first two columns give the lowest cost for each country. The lowest-cost United States mill has exceptionally low wood, the mill probably being situated on the frontier and putting in the wood at actual cost, without profit on timberland. There are but three or four mills in the United States with such cheap wood, and it is improbable that any more mills can be built in the United States where wood can be obtained so cheaply.

All of which goes to show that the crux of the whole matter is not efficiency of plants or cost of labor, although these are important factors, but that cheap wood makes cheap paper. The Canadians have had cheap wood, because their governments practically carry the investment for them, and now the provincial governments are further helping to build up the industry by shutting us off from competing for their wood with the Canadian mills.

Canadian cost $5.35 less than United States.-Comparing the average cost in the United States and Canada, we find Canada makes a ton of paper on the average $5.35 cheaper than we do. In discussing this table the report says: "The first thing that seems significant is that the difference in cost of wood per ton of paper is practically the difference in the total cost.

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PARAGRAPH 409-NEWS PRINT PAPER.

"The average cost of production of news print in Canada is $27.53 per ton; in the United States $32.88. The difference is $5.35, of which $4.71 is accounted for by differences in cost of wood as raw material in the pulp, etc."

Labor cheaper in Canada.-Other differences are comparatively trifling and actually offset each other, indicating that, as conditions now stand, the cost of converting pulps into paper is the same in both countries. This is substantially so, also, for converting wood into both ground-wood and sulphite pulps; but nevertheless Canada has another by no means negligible advantage, which is at present not fully manifest on the surface in the cost of production, and that is lower wages for labor. United States wages average, according to the data presented in the report, 27 per cent higher than Canadian, and this is equivalent to $1.50 per ton of paper in favor of Canada in converting wood into pulp and then into paper. This disadvantage is apparently reduced in actual practice at present by reason of better management on our part, or more efficient plants, to about 62 cents per ton. There is a difference in the ground-wood mill of 45 cents; in the sulphite mill of 63 cents. These differences, carried forward in the proper proportions and added to the 8 cents difference in the paper mill, amount to 62 cents. So it is not correct to say, as has been done in the newspapers, that the labor difference in a ton of paper is only 8 cents. The fact is, the true measure of the difference is $1.50, of which all but 62 cents is overcome by us by better management and more efficient equipment; but new Canadian mills will enjoy the full advantage, due to lower wages.

By combining properly the labor cost in the pulp mills with that in the paper mills, and including routine repair labor, it appears that the actual average labor in a ton of paper made in the United States is about $7.15, or about 22 per cent of the total cost, not including pulp-wood operations in the forests.

INTERMEDIATE PROFITS AND COST OF WOOD.

The report shows that the profits on pulp offset each other in the two countries, and therefore do not affect the comparative cost of paper.

WOOD PROFIT AND STUMPAGE IN GROUND-WOOD PULP.

Profits an wood not a factor.-In the United States 78.9 per cent of groundwood pulp carried into the cost an average stumpage cost for wood of $1.16 per ton of pulp, which is about $1 per cord for stumpage. This is a very low figure for the value of stumpage in the United States and in general must be based not on the present actual value but on the original purchase price of the timberlands. In Quebec the stumpage charged by the Government is only 65 cents per cord, and in Ontario usually 40 cents.

POUNDS OF MATERIAL PER TON OF NEWS PRINT PAPER.

Waste not a factor.—The report shows that substantially the same quantity of material is used both in the United States and Canada to make a ton of paper. Therefore it is not a sound argument to say that our mills should not have protection because of wastefulness, as a certain waste is obviously unavoidable, as every mill in both countries shows practically the same results. In discussing this point the report (p. 49) says significantly:

"Sometimes it costs more to save waste materials than it does to lose them." And finally it says:

"Some of the most advanced manufacturers are attempting to improve their plants in this regard, but in view of the high cost of equipment and labor it is still a question whether or not this will prove an economy."

It is hardly reasonable to suppose that manufacturers who have set the pace for the world are not alive to the importance of economy of materials used in manufacture.

EFFICIENCY OF EQUIPMENT IN PAPER MILLS IN THE UNITED STATES AND CANADA.

Paper machines only one of many factors in efficiency.-The discussion is confined to paper machines per se. To be convincing as to comparative efficiency of plants in the two countries the investigation should have covered other features

PARAGRAPH 409-NEWS PRINT PAPER.

of the equipment, which are quite as important, viz, the grinders in the groundwood mill, which vary greatly in output per horsepower and per wage unit, the digesters in sulphite mills, and the steam plants. In fact, every part of the equipment affects the efficiency. Table 17 indicates an extreme variation in cost of labor per ton of paper of $1.02, due to differences in the capacity of paper machines, but this may be largely offset in smaller or slower machines by savings in other respects, as, for example, in the cost of power to drive the machines and in the felts, wires, and other supplies with which it must be equipped, and interest on investment. Moreover, this table appears to be based on capacity rather than performance, and is therefore theoretical rather than practical.

Probably the resultant of all considerations is in favor of large fast-running machines, but even this point is disputed by some practical manufacturers. But by no means will we concede that the size, age, or speed of a mere paper machine are the controlling factors in the efficiency of a plant. A machine controls its own efficiency and that is all. The whole story is told in the total cost of converting raw material into finished product.

Total efficiency greater in United States than Canada.-Table 18 shows that Canadian mills have at present a slight advantage in the matter of mere papermachine equipment, but, as already stated, this is but one of many factors in the cost of converting the raw material into the finished product, and notwithstanding this disadvantage and the higher rates of wages the total average cost of converting wood into paper was in the United States a trifle less than in Canada.

Naturally the average age of machines in use in the United States is somewhat greater than in Canada, as the industry is older here. The United States average is 12.7 years; the Canadian, 7.2. Certainly 12.7 years is not excessive in view of the great cost of machines and the small margin of profit from which to create a depreciation or replacement fund. If 12 years is too old for a paper machine, why not also for the whole equipment or most parts of it. The money is not in the business to scrap our mill equipments every 5 or 10 years and then rebuild them.

Perfect efficiency impracticable.—While a few machines can produce 50 tons daily each, as against an average of 27.8 tons for the industry, such an attainment of product has only been accomplished within about five years, and it must naturally take a long time to replace all existing machines with such maximum producers. Too great haste would only make waste of capital. It is folly to suppose that any great and growing industry can, in all its parts, be on a plane of 100 per cent of efficiency. Nothing like such a condition prevails anywhere in the industrial world, certainly not in the publishing business.

If such a thing were feasible in any field, it would most likely be first demonstrated in the upkeep of the navies of the world, and yet our warships, and every nation's, on an average, are far from up to date.

Proof that lower cost in Canada is due to cheaper wood-not to greater efficiency in plants.-Before leaving the subject of efficiency, I think I can conclusively prove that we do not need or ask protection for “antiquated, out-ofdate" mills and machinery; in other words, that our mills, on an average, are not antiquated, are not out of date, and are much too good for the junk heap. I start by taking the average Canadian mill as the measure of efficiency, because they are our most formidable competitors; their mills have mostly been built within 10 years; their paper machines average only 7.2 years of age. The Tariff Board says they are a little better than ours, and I have heard no suggestion that they are only "fit for junk"; and, finally, their wages are lower than we pay. If our mills are proved to be as efficient as those of our strongest competitor, it can not be thereafter reasonably claimed that our duty is protecting inefficiency. I refer you to Table II, page 39, of the report. My claim is that, giving our average mill wood at the same cost as the Canadian average mill, it amounts to eliminating entirely the factor of wood, and that alone from the problem, leaving for comparison all other items which together make up the cost of conversion of wood into paper, which conversion constitutes or measures the efficiency of the plant as a whole. The results are as follows:

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