Chamada para trabalhos / Call for Papers
BRASA IX, Tulane University, New Orleans, March 27-29, 2008
Brazil Today, Trans-Atlantically Markus Kröger
University of Helsinki
Latin American Studies
Paper Focus: Brazil and Europe, political and economic inter-connections
Title: Finland, Brazil and State-Business Relations: The Case of Brazilian Pulp Investments
This article analyzes the role of two states in paper industry’s pulp investments to Brazil. The case study of Brazilian pulp investments can shed light on a wide array of important contemporary economic, political and social transformations. The investments open - through analysis of a specific economic niche - viewpoints into the state-business relations in and between Brazil and Europe. First it is assessed, if pulp investments are industrialization or agribusiness in the Brazilian context. After the conceptualization, I analyze the impact and role of Brazilian and Finnish states and paper industry sectors in creating new pulp investments. I answer to the questions: what pulp investments are, why and how they have gained impetus in the 21st century Brazil and how they impact the economy? Lastly, the article delves into the macroeconomic and political consequences of new pulp investments for Brazilian and Finnish societies.
By the case of pulp investments, general viewpoints can be opened to the research question of state-business-society relations in the global economy. The research suggests that 21st Century pulp investments are a revealing case of Brazilian – European relations. Economic figures point to pulp investments as maximization of paper corporation capital. Brazilian pulp investments are also a territorialization of the global paper industry symbolic system. Pulp investments have been detrimental to the Brazilian economy, democracy and nature. Consequently, the paper industry uses symbolization to hide the harsh macroeconomic reality. Nationalist discourses linking paper industry investments to Brazil and the Finnish success-story as well as job creation promises, are examples of symbolizations seeking to hide the macroeconomic reality of pulp investments.
Industrialization or Agribusiness? 8
The Paper Industry System, Finland and Brazilian Pulp 11
Finnish – Brazilian Relations 15
International Symbolizations 20
The Brazilian State Impact 22
State-Business Relations 22
Legal Battles, Election Financing and Society 26
Macroeconomic and Political Consequences 30
Conclusions and Discussion 35
Finland is a rich Nordic country, with leading technology and corporations in the global paper industry. In the 21st Century, the traditional Finnish forest industry cluster has been caught into one of the strongest structural transformation pressures ever. Production capacity and facilities are downsized in Finland. Meanwhile, and concomitantly, new pulp plants are opened in poorer countries, like Brazil, Uruguay and China. The case of new massive pulp investments by Finnish and other global paper companies has become quickly the single most interesting issue in Finnish daily media coverage on Latin America.
Also in Brazil, Uruguay and Argentina the paper industry has been in the centre of attention. The Uruguay-river has witnessed the notorious Botnia SA pulp plant dispute between Uruguay and Argentina. In Brazil, the landless movements, indigenous, ex-runaway slaves communities i.e. quilombolas and environmentalists, alongside others, have protested against increasing pulp investments that bring along hundreds of thousands of hectares of eucalypt and pine monocultures. All around the world, pulp investment decisions have been made in unison of companies and states. The society, especially local populations, have often felt the investments as taking place without proper consultation of their interests. As a result conflicts have ensued.
The pulp investment conflicts in Latin America can be seen as symptoms of a wide structural transformation that is taking place. The phenomenal rise of agribusiness into Brazilian economic policies and politics since the year 2000 is the structural cause behind pulp disputes. Pulp investments are a parcel of agribusiness expansion, as they rely on massive land ownership to attain fiber material for pulp.
Key corporations in the Brazilian paper and pulp industry are Aracruz Celulose, Stora Enso and VCP Votorantim. They are all linked to the Brazilian and Finnish states and Europe. I argue the paper industry to be closely intertwined with nation-states. Indeed, the support of states has been crucial in securing Brazilian pulp investments a prominent role in the global paper industry structural transformations. The change impacts people all around the world: the ever-more closer ties of Europe, North America and Brazil become very visible through a look on the paper industry. The basic dynamic is: more pulp mills in Brazil, less mills in Europe and North America.
Veracel Celulose is a pulp company within the global paper industry, a joint venture of Aracruz and Stora Enso. It can be analyzed as a representative example of paper industry in Brazil, as a sign of European-Brazilian paper industry and state inter-connection. Veracel is a joint venture-type investment with strong financial and business relations to the Scandinavian forest industry cluster, not only due to the 50% ownership of the pulp producing complex by the Swedish-Finnish Stora Enso, but also due to the massive Finnish service, consultancy, machine and equipment deliveries by the forest cluster corporations and partial financing of the investment by public investment banks through export credits and other measures. Also other major paper companies in Brazil, including Aracruz Celulose, Suzano and Votorantim – the leading private capital group in the country (Kingstone 1999: 58) - are linked to the Finnish forest industry cluster.
The Veracel investment opened one of the largest pulp mills in the world in 2005 in the Southern part of the Brazilian state of Bahia, close to the city of Eunápolis. Veracel is an investment quite similar to the Finnish Metsä-Botnia SA’s pulp mill, Botnia SA, in the Uruguayan Argentinean border-river city of Fray Bentos. Both in Veracel SA and Botnia SA material for the pulp production is Eucalyptus grandis and various eucalypt hybrids,1 mainly from the companies own vast and close-by private plantation holdings. These are fast-wood plantations of 5-10 years. Pulpwood situated in the bottom of the forest industry value chain: softwood plantations producing items like sawn logs and veneer logs offer much higher returns (Cossalter & Pye-Smith 2003: 9).
Brazilian fast-wood tree plantations are a contrast to buying the pulp material from real forests or small-scale producers of wood, as in Finland, where smallholders control to great extent natural resources after some 80-100 years of forest-owners cooperative movements and agrarian reforms (Kuisma et al. 1999). The smallholder controlling of forest resources is much higher in Finland than for example in Sweden, where big companies own forests. Nevertheless, in Northern Finland, Lapland, the Finnish State owns almost all land and sells wood on a continuous pace from the Arctic forests for paper companies like Stora Enso. When entering Brazil in the beginning of the 21st century, Stora Enso sold its vast forests in Nordic countries and bought land for planting eucalyptus in Brazil. Pulp is moving south.
Paper industry, pulp investments and their impacts has been studied, but there have not been comprehensive academic research on the 21st century Brazilian pulp investments.2 Uniting earlier research findings and delving deeper to the reasons behind the phenomenon and its consequences was the motive for writing this study. Currently I am finishing a PhD. Thesis on the interaction of paper industry and the Landless Workers Movement MST. I have also researched extensively pulp investment disputes in Latin America (Kröger 2005; 2007a; 2007b; 2007c).
The 21st century Latin American pulp mill ventures by paper industry are immersed into ever more global ties of trade and production circulation. Pulp is turned into paper and other paper industry products, close to major global markets in Europe, North America and East Asia. New pulp mill investments in Latin America attend the free market pulp markets, even though partly the production goes for integrated corporative use of pulp for the same company’s paper mills close to traditional paper markets. Half of the pulp produced by Veracel is taken and marketed by Aracruz Celulose, chiefly for the production of paper in the USA. Stora Enso transports its 50% share of the produced pulp mostly to its paper plant in Oulu, Finland, but also to other plants around the globe. The eucalyptus fibre is of high quality according to the paper corporations and serves best for the production of fine papers.3 From the point of view of a global paper corporation, the Veracel investment is important in order to secure the input of various kinds of pulp fibre from different sources (ibid.)
Even though paper corporations, European states and the current Brazilian PT government led by President Lula da Silva embrace, support and value new pulp investments to Brazil, not all are happy. Workers, local populations, other economic and political sectors and environmentalists have protested in Brazil and in Europe. One of the biggest news stories of January and February of year 2008 in Finland was the shutting down of pulp mills. Pulp mill workers and cities soon found social movements that demanded a stronger control of corporations by the state and government, the maintaining and tying of paper industry to their traditional home. In there where the local small-scale farmers of Brazil or the Argentine Gualeguaychú city protestors see pulp investments as a menace for their livelihood and well-being, the Finnish citizens would like to save their mills and let them stay where they are.
The case of paper industry offers possibilities for the Finnish civil society to ask the state for controlling measures, as paper corporations are largely owned by the state, and their impacts are nationally so relevant and all-encompassing. The paper industry has received so much support from the state that the society sees it fit to demand corporate responsibility that would not be perhaps so much expected in more market-led economic sectors. The paper industry has received care and attention from the Finnish nation-state, which has produced for it a full-fledged transportation and support network, offering qualified workforce and ample funds.
In Finland, no single group has been controlling the state after the people-separating 1918 Civil war. National integrity and consensus politics have reigned. Social and economic capital increasing phenomenon like cooperativism and syndicalism ensured wide public access to the fruits of development. Citizens pushed by political parties the state to do agrarian reforms and set laws regulating the ownership of lands and forests in the first half of the 20th Century. The traditionally powerful, resource-based competition relying paper industry had to turn into competing with quality instead of quantity as the raw material prices were negotiated against a very organized group of small-scale forest owners. Cooperation, competition and progressive legislative framework setting led into a paper industry cluster that became a world-leader and provided welfare for citizens all around the country. The paper corporations saw their 19th Century power as local and national magnates and patrons fade away progressively. (Kuisma et al. 1999; Kuisma 2006.)
In the 21st Century Brazilian pulp investments, the patronal cultural roots of paper corporations have gained a context to be reborn. The Brazilian context offers for the paper corporations a relaxed social space where syndicates, cooperatives and other social capital have not blocked into such extent the space of manoeuvre as in Europe and North America. The paper industry system has not forgotten its roots, but is seeking to re-establish them there where possible. I argue this is a systemic phenomenon and characterizes the conservative and rigid quality of the paper industry. Globalization and lower transportation costs have made the global reach of the paper industry system possible. Instead of subduing into lower profits and less hierarchical power relations with less arbitrage, the paper industry opts for territorializing into social contexts where it can relive its 19th Century existence. Brazilian pulp investments display a conjunction that highlights the importance and difference of European and Brazilian societal structures, most importantly the difference in agrarian reform politics.
In Brazil, efforts have been massive to support the pulp industry. Veracel was the biggest single investment in the first term of the government of President Lula da Silva (PT) in Brazil, totalling an estimated 1 billion Euros if measured by orthodox economics. The Brazilian government has given extensive fiscal, financial and political backup and incentives for the construction of pulp mills and for industrial tree planting (Bull et al. 2006). The basket of benefits includes: almost cost-free financing – for example, 450 million Euros, i.e. almost half of the Veracel investment came from the Brazilian government via its development bank BNDES - fiscal incentives, as well as political back up.
CIFOR criticises skewed state support given to paper corporations: “public taxes are used to subsidise privately owned ventures” (Cossalter & Pye-Smith 2003: 35): tree plantations are oligarchically owned. The World Bank recommendations for Brazilian welfare generation are against the share-value increase objective of paper industry shareholders, such as Safra, Votorantim, Lorenzen and the Finnish State. Subsidies have been extra money given to the paper industry – a practice of deviating tax-payers and society’s money to corporations and shareholders - tree plantations would have been profitable even without subsidies, according to the World Bank, and with more sustainable and reasonable results (Cf. Cossalter & Pye-Smith 2003: 37).
Latin American business politics researchers like Ben Schneider have found that state support has been the most important factor in determining business sector performance: the paper & pulp industry case supports this point (Schneider 2004). High-level political leaders in Latin America – like President Lula da Silva and Tabaré Vasquez in Uruguay - have defended pulp investments in front of civil society critics. In Argentina President Kirchner set himself and the Argentine state against the paper industry expansion in the Botnia dispute’s turmoil. In the three country cases, we can see how the securing of high-level political power acceptance has been crucial in setting new pulp investments.
I have analyzed there to have been four major reasons and parameters explaining pulp investments. Three interrelated channels create the late phenomenon of manufacturing pulp from eucalyptus in large-scale in South America. These are:
Host country politics giving state support to the forest cluster
Geographic relocation of paper & pulp company activities due to needs and possibilities within the new global economy
Transformations within the paper industry symbolic system.
Lately, a fourth and constantly more influential channel has emerged:
The grassroots-level social movements and organizations activism in local, national and international levels against the setting up of large-scale eucalyptus plantations and massive pulp mills.
The Landless Workers Movement MST and many Brazilian social scientists have pointed how pulp investments - and the agribusiness expansion phenomenon to which they are linked have resulted in a counter-agrarian reform. For this they blame the Lula government (see, for example, Gonçalves 2005: 13-14; Oliveira & Stédile 2005). The researchers defend the thesis by pointing how Lula has appointed agribusinessmen to key government positions and state institutions; how rural violence has peaked; and most importantly, how the essentially important power-using mechanism of financial support has been centralized for agribusiness like pulp investments to the detriment of agrarian reform (ibid).