Ramu Ramanathan (RR): Last year, the Indian packaging market was valued at USD 50.5 billion. By 2025, it is expected to notch up USD 204.81 billion. This means, registering a CAGR of 26.7% during the period of 2020-2025. You are a keen industry watcher; what is your view? Kirit Modi (KM): I feel these projections are over-optimistic. The Indian economy is projected to touch USD 5 trillion GDP from the current base of USD 2.5 trillion in the next five years. This means CAGR of 15%.

RR: Do you feel these numbers will hold true now? KM: I would keep my growth target for the corrugated box industry between 15%-18% (maximum) going forward for the next five years.

RR: Packaging has been seen as the “Big Hope”. Has 2020 shown us some of the fault-lines in the system? KM: Yes, fault-lines in the system are very evident. The major weakness for the Indian corrugated box industry is excess supply capacity. This has resulted in weaker pricing power of its products. Excess capacity coupled with industry fragmentation has been a potent value-eroder.

RR: During the Indian Corrugated Case Manufacturers' Association (ICCMA) webinar you cautioned that China is the X-factor in 2021. You said, "China is the largest consumer and importer of containerboard in the world; it is the largest exporter of manufactured goods that needs packaging." Explain. KM: China’s hunger for kraft paper and kraft paper rolls (pulped fibre in rolls form) is a big X-factor. It has changed the market dynamics in India – and shall continue to do so going forward.

RR: What are the growth prospects for packaging in India as against the rest of the world? What kind of impact will the X-factor have on India?  KM: Various initiatives of the Government of India, including the ‘China plus one’ strategy, is prompting global firms to invest in India. On 11 November, the government announced the production-linked incentive (PLI scheme) to incentivise firms in 10 sectors to drive local manufacturing and improve exports.  In addition, there is Atmanirbhar and the structural reforms, which should boost growth prospects for packaging in India.

RR: The Indian packaging majors were notching up 90-95% of the pre-Covid capacity. The underlying drivers of demand for mono carton packaging as well as flexible packaging remain strong. What are the key trends ICCMA collated among corrugation case manufacturers in 2020? KM: The Covid-19 pandemic impacted ICCMA’s members in different degrees based on their client profile. The factories, which were catering to sectors such as automotive, electronics, consumer durables and consumer discretionary were impacted quite severely. However, the factories, which were supplying consumer staples, were affected marginally. The growth of the eCommerce sector during the Covid times did help to a great extent, especially those units, which were catering to this segment.

The corrugated box industry facing price pressures and supply disruptions on account of fibre shortage?

RR: But the corrugated box industry has been severely impacted by four price hikes in kraft paper and a substantial hike in other input costs such as manpower, starch, freight and other overheads, which has been calculated as 60-70%. Is survival at stake? Who foots the bill, your customers? KM: The current crisis for the Indian corrugated box industry is due to the 70% hike in the cost of kraft paper. What you must understand is, we are converters. And as converters, we need to be reimbursed raw materials price hikes for our survival. There is definitely a huge challenge for the industry in terms of pressure on costs, profitability and additional working capital funds. Our industry is requesting brand owners and corporate clients for their support. We are requesting them to understand our problems.

RR: We are aware of the ICCMA members who belong to the top tier of the industry. But what is happening to the 10,000 mirco- and mid-sized players in the corrugated box industry in India? KM: We are currently facing two back-to-back Black Swan events. First, it was the Covid catastrophe. This was followed by the shock of 70% kraft paper hikes. Both events have impacted everyone – be it big or medium or micro units – in the industry. However, the units that have stronger balance sheets, as well as clients’ support, will navigate through this crisis. Others will struggle.

RR: You are president emeritus of ICCMA. What has been ICCMA’s role thus far? KM: ICCMA is trying its best through media campaigns as well as webinars to create adequate awareness of this crisis. It is important that the consequences of this crisis are known to all stakeholders. We are hopeful that we shall receive the desired support from both clients and the government. We not only hope for mere survival, but also solid growth.

RR: For an industry where kraft paper is the biggest cost, it makes sense that companies would want to track its use, or more specifically its waste factor. KM: ICCMA held two important and exclusive webinars in the last couple of months on costing, as well as wastage. Both webinars were attended by a large number of our members as well as other invitees from the corrugated box industry. All relevant facets of costing as well as wastage was discussed and debated. The members welcomed these initiatives.

RR: How do you practice this at your plant? KM: Horizon Packs has taken-up the issues of cost control as well as wastage reduction very seriously. This means, improving the operational efficiency as well as the necessary automation in our plants.

RR: The wastage at an average corrugation plant in India is as high as 14-15%. One realises that one of the major causes of higher wastage is the poor quality of kraft paper available to Indian corrugators. Despite the importance of packaging, why has this remained so? KM: Poor quality of kraft paper is no doubt a major cause of higher wastage. Having said that, I would like to add some other factors at box-makers’ end that need to be improved.

RR: Such as … KM: Upgradation of board-making and converting machines, strengthening production systems and internal processes.

RR: Has the post-Covid scenario led you to any design innovation in packaging? Have you spotted any innovation that inspired you? KM: The Covid scenario has imparted a great boost to the eCommerce sector. We see a lot of design innovation relating to the eCommerce sector.

RR: We interacted with Ullas Kamath, joint managing director at Jyothy Labs. He expects the rural to urban contribution to see a change. “Normally, the rural to urban contribution is 40:60; which may change to 45:55 this year. The point is, how are brands adapting to these changes?  And how will it impact brown box design and packaging supply chain in India? KM: You are right. Part of eCommerce growth is related to the shift in urban to rural demand. Various initiatives of the government relating to agriculture reforms would definitely boost rural India. The demand will be brought to the centre stage as we go forward. Most of the brand owners are now focusing on rural demand. The entire packaging sector is helping in redesigning packs, which suit the rural markets.

With over four decades of experience in the kraft paper and corrugated box industry, Modi has developed a unique overview of the market trends.

After completing his post-graduation at the Indian Institute of Management, Kolkata in 1971, he handled a range of corporate assignments in the paper industry at a senior level.

He ventured into the packaging industry in 1991 with the Horizon Packs group. And since then, he has established a pan India presence for the group with manufacturing locations across the country. Also, he was the founder president of the Indian Corrugated Case Manufacturers’ Association (ICCMA) and presently, he is the president emeritus.

RR: Must be tough. People's expertise in the corrugation industry is under-rated. KM: The Indian corrugated box industry is facing challenges in getting trained operators. Some of the leading units have invested in state-of-the-art machines in India. These box manufacturers have taken the lead to source trained operators – and have started hiring the same. In a way, the Covid situation helped to do this. Many operators who were placed in African and Middle-Eastern countries chose to return home. With their help and internal training, the units have managed to tap the requisite talent to run these new machines.

RR: How much wastage is caused because of untrained operators? How to hire a candidate and train him? KM: ICCMA is trying to engage with the Government of India to help us in setting up a training institute to provide tech-talent for our industry. Let’s hope something develops soon...

RR: One of the feedbacks from the corrugated case manufacturers is that paper cracking remains a major challenge, as paper mills have increased the use of starch in paper to increase burst factor and ring crush values. Then there is the odour factor. Is that true? KM: True. It is sad that the Indian corrugated box industry is still facing three acute challenges as far as domestic kraft paper quality: That is bad odour, cracking due to use of excess starch, and below-par rewinding quality.

RR: How will the industry address these issues? KM: We have learnt that some of the paper mills have taken steps to invest in a good effluent treatment plant at the mills. Also, these mills have started using higher percentages of long-fibre waste cuttings to take care of cracking complaints. Last year, ICCMA did engage with some paper mills in some regions to highlight these issues with the tech teams of the paper mills for their corrective actions.

RR: With fluctuating kraft paper prices and corrugators operating on wafer-thin margins, efficiency becomes paramount and one wonders if an average Indian corrugator is aware of his operating costs. Do you capture production costs? How? KM: As mentioned earlier, ICCMA conducted a costing webinar in which we have highlighted how to calculate production costs, overheads and wastage percentage. As part of this exercise, we included interest on the investments and term loans as well as working capital loans. We feel most of the members are aware of their production and total costs. Most of them have opted for ERP systems that accurately capture the data online. I don’t see a major challenge as far as capturing the costs.

RR: Then? KM: The struggle for the industry is to get a fair conversion cost from the clients.

The current crisis for the Indian corrugated box industry is due to the 70% hike in the cost of kraft paper

RR: With automated corrugation lines and high-end finishing machines, the quality and performance of the box improves, leading to optimisation of specifications and light-weighting. Does that mean the overall market will shrink further? KM: Yes, the tonnage of kraft paper consumed has already shrunken in the last few years on account of light-weighting and specs optimisation initiatives undertaken by our members to pass-on the appropriate savings to the clients. Here, the issue that comes up is related to getting offset in conversion costs from the clients.

RR: Meaning? KM: Our members have no issues about passing on fibre savings on account of the optimisation. However, in the process, the convertors should not end-up absorbing the brunt of the conversion cost. This is a pain point that our industry has been facing due to historical reasons. Conversion costs in India even today are granted on a ‘per kg’ basis. Whereas, all over the world, it is based on ‘per sq metre’ basis. There is little traction on this transition. ICCMA is working on this. If we make headway it will benefit the box manufacturers even when the brands opt for light-weighting.

RR: Has our industry seen a shift in the manner in which contractual agreements are drawn between vendor and client? What kind of monitoring and evaluation systems are in place now? KM: The industry is yet to enter into a contractual agreement environment. It will work only if there is support from the back-end. Kraft paper mills need to show readiness to enter into such agreements. At the moment, we are working on a “Daily Change” kraft paper pricing policy by the mills. And hence, your query about contractual agreement is a utopian reality.

RR: Two emerging sectors are the entry of modern retail and therefore multicolour and photorealistic images, and multicolour graphics. What are the new possibilities for printing on brown surfaces?  KM: Modern retail has yet to take-off in a big manner. However, some of the leading units offer multi-coloured flexo printing machines as well as other converting set-up to take on such jobs. I think we are in the first phase of that evolution. We can print multi-colour on both brown surfaces as well as white.

RR: The governments around the world are looking at mixed paper grades unfavourably, since the perception about mixed paper to be contaminated has become a reality… KM: We have sent our representation to the Government of India to follow the China model. That is, restrict the usage of domestic waste cuttings for the domestic box industry. Our government will have to consider banning the export of recycled pulp rolls out of India. This has created a huge supply gap of kraft paper as well as waste cuttings in the Indian market. Every industry, which deploys corrugated boxes, will be impacted heavily by the 70% hike in the prices of kraft paper. We have drawn the attention of the government. We hope we will see some action very soon since the survival of the Indian corrugated box industry is in danger.

Why the Government is being urged to curb exports as domestic supply dwindles

Arbitrary price hike - From 1 March, the prices of coated and uncoated papers have been increased by USD20 (Rs 1,456) a tonne. The prices would be raised further by USD20 each at least four more times this month; at times, daily 20% of Indian box makers are on the verge of closure.

Pre and post-pandemic rates - Prices of waste paper imports were USD150 (Rs 11,000) a tonne before the Covid-19 pandemic. Now, it is USD310 (Rs 22,575) a tonne. Recycled fibre (waste paper) based paper mills, which account for 70% of paper and paperboard production in India say the raw material prices have doubled over six months.

The unprecedented price rise - The demand gap and pricing in China is diverting the output of Indian kraft paper. Exports of recycled kraft paper pulp rolls by Indian kraft paper mills is two million tonnes this year, approximately 30% of total domestic kraft paper production in India.

China factor - The exports of kraft paper from India to China have surged as China has banned the import of waste paper from 1 Jan 2021. Exports from India are in the form of recycled kraft paper pulp rolls. This has created a huge shortage of raw material for the domestic corrugated industry.

Ban on exports - The corrugated box industry in India has 350 automatic corrugators and 10,000 semi-automatic units, mostly in the MSME sector. The Government of India needs to ban exports of recycled kraft paper pulp rolls, as the domestic corrugated industry, which employs more than six lakh people, is in dire straits.

RR: In what way? KM: On the base of zero export of kraft paper rolls in 2018, it jumped to 0.5 million tonnes in 2019 – and to 1.5 million tonnes in 2021. It is likely to notch up two million tonnes by next year. This would constitute almost 30% of Indian kraft manufacturing capacity.

RR: Quite alarming. Going forward, what is your strategy in regard to raw material sourcing in the near and long term? KM: In the near term, the Indian corrugated box industry has no other alternative, but to depend on domestic kraft paper supplies. Until China’s hunger and demand is met or the Chinese economy cools down, the scarcity of kraft paper is here to stay.

RR: For how long? KM: At least for 2021.

RR: What are the most profound changes the pandemic has brought upon the print and packaging industry? Do you think some of these changes will be permanent? If yes, what would be those? KM: Other than the demand and supply imbalance, which has already been explained, I feel the major structural change is that those players in both print and packaging industry whose balance sheets are strong and they possess the right infrastructure; and those who have proved and shown their resilience during the Covid times will survive and thrive. Others will need to improve their game – and up their ante.

Modi: eCommerce has become a major client segment for the box industry today

RR: Will eCommerce change the rules for the corrugated box industry? KM: Today, eCommerce has become a major client segment for the box industry. That trend was amplified during the Covid times. The growth of this sector is going to continue for some time now. The box industry is fully equipped and ready to satisfy their needs and demands.

RR: And finally, a personal question. How has the Covid-19 pandemic impacted you at a personal level? KM: The pandemic did make some meaningful changes in my life at a personal level. As you know, we have units at various locations pan-India, which necessitated my intense travelling. Working from home in the last one year has shown that one can manage the admin-affairs quite well. The savings in terms of time helped me to catch-up on other things including spending quality time with the family.

RR: What challenges did Horizon Packs face during the lockdowns? What tactics did you employ to mitigate? KM: One of the challenges we faced was ensuring that all our clients are supplied their requirements in time even during the lockdown. As we have a large portion of our business from the FMCG and F&B sectors, we did not suffer much in terms of production and sales. But clients in other sectors had to close down and hence that portion of the business was hit. Our team rose to the occasion and ensured that the wheels kept moving at all our locations. The culture and team spirit we had built over the decades helped us to navigate this critical phase with minimal impact. My job during these times was to keep our team members highly motivated by extending them 24 hours support.

RR: Thank you. I hope the government pays heed to the ICCMA statement and helps the corrugated box manufacturers tide over the crisis.

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