Rise and fall of PICOP – Mindanao’s timber plantations (Part II)

Tree plantations began to spread during the late 1960s in the Agusan-Surigao area of Mindanao. They were seen as part of the reforestation program of the government.

Also, a major private company was heavily involved in expanding tree plantations for its own operations.

The Paper Industries Corporation of the Philippines (PICOP). In 1952, a massive timber license covering 186,692 hectares of forest lands was granted to a logging company, Bislig Industries, Inc.  In 1963, the company renamed itself as Paper Industries Corp. of the Philippines (PICOP).

PICOP was to become the first company whose pulp and paper operations would be fully integrated with its raw material source, which is the forest concession. In conception, it was a bold new venture. It was the first such company in Southeast Asia that would source its supply of materials from the mixed use of tropical forest trees for its pulp and paper operations.

The whole concession area provided a steady base for selective logging of the mature Philippine hardwood forests that have a natural logging cycle of 25 to 35 years. The large concession would allow the cutting of logs for export and for further processing.

The pulp and paper mill would require a steady supply of fast growing varieties of forest trees. It was planned that up to 46,000 hectares of the logging concession area could be clear-cut for the planting of trees that mature in seven to eight years.

The company also foresaw other private tree farms could be induced to expand the supply of tree plantations. It forecast an additional 20,000 hectares of private plantations could be tapped to supplement the concession area.

PICOP at its peak.  To harvest logs continually required the construction and maintenance of a road network. At its peak in 1984, the company reported it had 2,100 kms. of roads within its concession that were good enough to carry 50 ton loads under all weather conditions.

The industrial activity rested on its lumber, plywood, and its newsprint lines. In 1984, the rated capacity was for various industries in Bislig consisting of a newsprint line, 86,000 MT; container board , 68,000 MT; plywood plants #1 and #2, 150,000 MT; lumber, 50,000 cubic meters; and blockboard, 10,000 C.M. From acquisitions, it had further pulp and paper making capacity located in the Iligan area.

For its part, PICOP undertook the planting of imported and indigenous fast growing varieties for its own plantations: falcata (11,970 hectares), eucalyptus deglupta (13,600 hectares), acacia mangium (5,560 hectares), and gmelina arborea (300 hectares) and pine trees (820 hectares). Of these fast growing trees, eucalyptus was the notable indigenous variety for the rest were imported tropical varieties.

Long term loans for tree planting from DBP also helped in the promotion of privately owned tree plantations. Such a loan program was initiated by initial funding from the World Bank. PICOP also actively provided technical information and assistance, including estimates of the values of trees grown to maturity.

The fall and demise of PICOP. Although tree plantations have survived in Mindanao today, they did not rise to the scale hoped for by those in the industry. A big part of that story was the fall and demise of PICOP.

PICOP fell apart during the financial, economic and institutional changes that hit the nation during the late 1980s. Politically, these were the years when the country experienced political turmoil, as the country transitioned between the Marcos and the Cory Aquino years.

Lack of space requires that I summarize two major points why PICOP failed.

First: institutional arrangements were undermined. PICOP’s operations depended on sustaining the institutional arrangements on which it was founded. These fell apart during the 1980s, a time when the country suffered economic and political turmoil.

Peace and order became a major problem as the NPA rebellion became more aggressive. The property rights assigned to the company by its concession also were affected (or destabilized ) by changing forestry regulations and policies.

Thus, squatting on the land and intrusions on the property rights associated with the tree plantations became rampant. Within the firm, labor union troubles percolated. In no small account, this also led to local political problems for the company.

Second: PICOP’s internal flaw as an industrial enterprise. In my view, this was a more significant explanation for its failure as an enterprise.

The company’s management of its future was grossly flawed. Despite its huge size, it was based on a go-alone industrial enterprise of the main owners that depended mainly on credit from the state financial institution. Of course, it had its income from the logging and industrial operations based on the forest concession, but this did not prove sufficient.

The company did not seek major partners in the field of paper making that could have helped it to raise capital, improve its technological capacity and productivity, and broaden its markets for its output.

PICOP was firmly framed along the idea the company provide production mainly for the domestic market. All its actions with respect to capturing the domestic market through state support limited its enterprise vision.

But its main financing was dependent on the DBP, the state development bank. When it failed to service its loans, it became an acquired asset of the state financial institution.

Later, when the company was sold to new investors by the government through the privatization program, those who were allowed to buy it were themselves undercapitalized and had little capacity to carry through its major industrial plan.

PICOP’s case compares poorly with the Asia Pulp and Paper (APP), the Indonesian company, which has grown on the same model of a pulp and paper company dependent on mixed use of forest trees.

From its very beginning, APP (although essentially Indonesian-owned) had competent and foreign partners from Taiwan who were experienced in pulp and paper making.

APP today is a major force in the international paper and pulp industry. (It is even the main target of criticisms of environmentalists like Green Peace for its exploitation of forest resources). Today, PICOP is essentially dead.

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/