Cartonboard

Summary of submissions

Carter Holt Harvey (CHH), the sole manufacturer of cartonboard, and sole submitter on this activity, has suggested that the activity definition remain the same as the Australian activity definition with three minor exceptions:

  • The activity definition for cartonboard should be expanded to include logs as an input.
  • The activity definition for cartonboard should be expanded to include uncoated cartonboard as a product.
  • The activity definition for cartonboard should be expanded to include sheets of cartonboard as a product.

Officials advise that including logs as an input is not desirable because this includes the process of making wood chips and it is considered that wood chips are an intermediate product that can be substituted for bought-in inputs.  This is consistent with the treatment of intermediate products in other activity definitions and with the proposed Australian activity definition for cartonboard.  The only exception is for the production of ground wood pulp in New Zealand cartonboard production, where log billets are used as input.  In this case, there is no production of wood chips, so the Australian definition should be modified slightly to accommodate this process.

Officials consider the other suggestions from CHH are appropriate and the activity definition should be modified accordingly.

Summary of analysis

Matter Analysis
The requirement to define each activity by reference to a physical, chemical or biological transformation of inputs into outputs. Activity description is consistent with this principle and essentially the same as the Australian definition.
The undesirability of activities being defined by reference to the technology employed, the fuel used, the age of the plant, or the quality of the types of feedstock used when the activity is carried out. The proposed activity definition does not reference technology, fuel used or age of plant.
The desirability of defining activities:
  • consistently and equitably across industries.
  • in a way that takes into account the impact that definitions may have on business investment, geographical location, and the structure of activities.
  • in a way that takes into account the potential for intermediate inputs produced when the activity is carried out to be substituted for bought-in inputs.
 The proposed activity definition is consistent with this matter.
The exclusion of upstream intermediate products (wood chips) and transportation has been applied consistently across activities. Log billets are included as input because New Zealand’s only producer manufactures ground wood pulp directly from wood billets as part of the integrated process, and thus not intermediate product is produced.
The production of cartonboard consists of a two stage integrated process: pulp production and cartonboard production.  Market pulp can be purchased as an input but on-site pulp production can be considered to be integrated with the cartonboard manufacture because the integrated pulp is wet and cannot be traded.  Tradable market pulp requires an additional process and further energy to dry the product making it distinct from pulp produced in an integrated process.  Furthermore, the inclusion of integrated pulp production is consistent with the Australian activity definition.  New Zealand producers would be disadvantaged compared to their Australian competitors if the integrated step was not included.
Because of this, it is proposed to have two allocative baselines: one for each of these two stages.  A party that only carries out stage two will not receive an allocation for stage one.  This should prevent any distortions in terms of incentivising parties to stop producing pulp on-site and purchasing market pulp. 
The desirability of there being no overlap between activity definitions. The proposed activity definition overlaps with the market pulp definition but the separate allocative baselines will avoid distortions.
Any other matters the Minister considers relevant, including activity definitions proposed to be used in Australia. The proposed activity definition reflects the activity definition for production of cartonboard in Australia.

Recommendation

We recommend that the proposed activity definition for cartonboard should remain substantively unchanged apart from some minor changes recommended by the industry.

Last updated: 10 May 2010