Forestry and bio-sector frontrunner UPM integrates the two industries to innovate greater value from renewable and recyclable materials. Juha Kääriäinen, Vice President of Operations at UPM Uruguay, discusses the company’s successful year, which included a landmark university agreement, its quarter-century commitment to Uruguay, and its focus on efficiency and sustainability.
Insights on the continuity of policies and objectives set by Jose Mujica and main challenges to be addressed in the coming five years.
We have been twenty-five years in this country, so we have been working along those years with the whole entire political spectrum of Uruguay. So we have been seeing that this country has been stable, politically, socially, economically, and we believe that will continue, so in a way there are some issues that still could be or should be improved, for example, logistic infrastructure in the country, we must improve our efficiency, and of course education is always important in this country.
We’re seeing many PPPs – public/private partnerships – coming into place. How optimistic are you that these ambitious plans will come into place in the short term?
I believe that those are realistic plans about roads, railways, and so on. And of course, then the question is: what is the timeline? But those are proceeding, that’s for sure.
How has the geographical positioning of this country helped the success of UPM throughout these twenty-five years?
Our main product nowadays is pulp. Of course, our customers are in Asia or in Europe, so we must have good logistic connections to the main ports of Uruguay. That is the way it should be, so that’s the only way to survive and be competitive, to have good connections.
Do you think the port network of this country is their main competitive advantage?
Of course there is still a need to develop the port structure, so how deep. As an example, the connection to Montevideo port, that should still be deepened, so that is still a possibility for development.
And we’re also seeing Rocha.
Yes, but that’s probably a project that is much, much, let’s say it takes much more time.
We’re seeing the continuity of Tabaré Vazquez leading the country once again after José Mujica. How is the continuity of the policies affecting the private sector in the short term?
As I said, we have been working with the whole political spectrum of this country, and the stability has been there, so our way of working is we have had and will have open dialogue with the government and that’s the way our whole dialogue always develops things and you get the results.
In other interviews we’ve been told that, even though there are some issues at the moment with the port and so on, the synergy and the transparency and the communication with the public sector and the private sector is amazing in comparison to neighboring countries. Therefore we see that as a competitive advantage as well, no? That synergy between the government and private entities.
There is good dialogue, and that of course develops this country, when things are discussed.
Just one last question before moving on to UPM, Mr. Juha, is we’ve seen in recent years a huge growth within the forestry sector. Uruguay is known for its agriculture and logistics and recently more for services, but now forestry. How do you see this evolution? What are the main reasons behind it?
Of course, behind this all was the forestry law from 1987, when the land was prioritized, and after that there has been priority forestry, so that was actually the time and also when our company decided to enter to this country, as well as many other players.
So that was a very important step. Of course, then we as the first big investor started building the pulp mill and it has been in operation from 2007 onwards.
And now the second big player started last year. So that all has meant that actually this year it might even be that pulp will be the biggest export article from this country, besides soy and meat.
It’s amazing, no? Exciting times ahead.
I believe so. But in a way this country has lots of opportunities. There have been lands which were not used in an efficient way, so now with this kind of industry Uruguay is one of the top players as a country.
Who would have guessed, no? Uruguay is such a small country, and it’s one of the leader players at the moment within such a big industry.
Probably twenty-five years ago even our company was not guessing that yet. Because that was still a time when actually UPM wasn’t the current UPM, it was one part of the current UPM which invested, together with Shell, in those forests.
Shell was also interested in renewable energy, not pulp production.
Well, Shell is interested in everything. They always put their eyes on everything. Fantastic, thank you very much. 2014 has been an amazing year for the group, an increase of 24% in operating profit, a new reshuffle of the global management structure, UPM being a perfect example. What are the reasons, Mr. Juha, between such a successful year for the group?
In a way, I don’t want to comment that much on the whole group because that’s more or less for CEOs to comment.
But actually, for the UPM in Uruguay the year was also successful, we made a new production quota, so for us here it has been really important that we have got the production permit to produce 1.3 million tons annually in this country, that has enabled us to improve everything in our operations at the mill as well as forestry operations, so always our production is mass production value and every year something new to be efficient at and to be competitive with.
I believe one of the core values of this company is to invest in research, innovation, and technology.
Yes, of course we have those six basic businesses, which we also try to develop all the time, but we have also preserved the search for new types of products, for example, renewable biodiesel was one of the products we launched this year.
We produce diesel and it’s a side-product of producing pulp.
So you’re maximizing the output of all your business units.
Yes, that’s the way to survive in this business. Of course, in the long run, this kind of company must also research and try to find new businesses.
Wood has plenty of possibilities still which are coming. There is plenty of chemicals in wood so one day there will be a different kind of chemical, so different kind of even medicines produced of wood.
It’s quite a complex system because I’ve been preparing for this meeting and there’s so many different things within the group’s network so it’s quite impressive. I read an interview by Mr. Matías here on the internet where he said that out of the four plants, the one in Fray Bentos is the most profitable of the group, so correct me if I’m wrong.
UPM Fray Bentos mill is the biggest pulp mill within the company.
We have three mills in Finland and those are all also older than this mill, and they have two products that all three produce, short and long fiber, because here short fiber products are eucalyptus pulp but in Finland short fiber is birch and long fiber is always pine or spruce.
So in a way, having smaller units in Finland means that also profitability and possibilities are different.
So Uruguay, well, Fray Bentos in this case, is playing a key role in the global industry at the moment.
Yes, we are a big player. Of course there are big mills also in Brazil and in Chile but when the mill was built it was the biggest at that time.
Now we have been even improving our products and so that 1.0 million mill is now 1.3 million ton mill.
But of course there is new mills coming which are already even 1.5 or there has been an announcement of 1.75 million ton mills coming in the future.
So what would be the main priorities in the medium-term for UPM Uruguay?
Medium-term, our priorities are to run as efficiently as possible, develop our forestry operations so that also we get efficiency out of that, and of course safety comes first, and also environmentally friendly operations, which is one of our campaigns so that we don’t harm the environment.
So sustainability is a key factor for UPM Uruguay. We see three years in a row on the Dow Jones sustainability index for UPM Uruguay. How important is it for you, as VP of UPM Uruguay, to maintain the highest commitment with the sustainable development of Uruguay?
It is really important. We can’t be efficient in this country without behaving like that so those environmental issues as well as safety issues are important.
But it’s important that we are part of this society. Our operations are in rural areas so there are over ninety communities we are working and the development of those societies, those rural areas, is really important.
Because we need employees in those areas. The tendency in Uruguay has been that everything centralized into Montevideo but we need living Uruguay.
Not only Montevideo.
Not only Montevideo. That’s one thing why we also use our UPM Foundation as a tool to develop those.
It’s an educational resource in those areas, to be part of the society, to make good actions with locals and also even helping to connect them to other social organizations and players to solve the local challenges.
UPM in Uruguay is one of the largest employers in the country, and you recently signed an agreement with the Technical University to build a whole brand-new university in Fray Bentos. This is a true landmark for UPM Uruguay. Please expand a little bit more on this.
The thing is that we need trained, educated people in this country. And I said earlier, not only in Montevideo, our operations are in other parts of this country.
So we need talented people and I feel that the way to keep all those talented young people in those areas is to have the university possibility also there.
For example, in Finland, it’s taking place all the time, so in Finland there is universities from south to north, from west to east, so it’s not concentrated to Helsinki area.
And in a way, we wanted to support this development also in Uruguay.
I think it’s very, very important, no? That it’s going to be a source of, once again, competitive advantage for the company in the near future, with these high-qualified graduates.
Yes, because it’s not only us but the whole cluster that has been built over the forest industry. For example, we work with 600 contractors. So it’s a huge amount of people as a whole.
Moving on to the Foundation itself, for many, many years you mentioned, it’s been contributing enormously to the social development of the region where it operates. How connected is UPM to the rural area of Fray Bentos apart from investing in education and so on? How committed is UPM in Fray Bentos to the whole community?
Of course we use that Foundation as a tool to help, but the goal is people can propose projects to the Foundation to cover at least partly the costs of that kind of health or trade education, other social projects.
So in way we’re going to support those kinds of projects, where people or the community itself is active, so we are not just giving money, we want to activate the people, that’s really the way to have the best results.
Absolutely. Because giving money can reach a point where it’s not very complex at all, but making it useful is another thing.
Yes, in a way it must be just promoting that kind of activities.
Moving on to safety issues, we know the plant in Fray Bentos is one of the most advanced, technologically speaking, in the world. Can you give us an introduction to the main principles within the safety within the plant?
When the mill was built, the starting point was of course building the mill and safety.
Safety in Uruguay in that time in any company was not at its current level so we brought the whole idea of safety to the product sector and it has been developing all the time so we are have all the time new ideas, new trainings to really concentrate to safety.
Now we have been two years at the mill without lost time accidents with our personnel. There was an earlier period when we went almost three years without accidents, so there is a safety culture, and I would say that the whole Uruguay has changed also after this kind of investments, the safety culture.
Because we have the same safety rules for all the contractors we are auditing, so it’s not only our people, but the whole society has been developing so that safety is important.
I don’t have anything else but I guess that lost time accidents in all of Uruguay has been coming down in that period of time.
That’s something to be very proud of, no?
Yes, we are proud of our people, that they have taken safety as a question of heart.
Also, doing the research, I was watching some videos from a few years ago that are posted on YouTube, and I don’t know if the gentleman’s still the HR Director, but he was saying that yeah, there are many similar plants around the world that do similar things to UPM, but that the key differentiator was the humankind.
Yes, I’m really proud of this thing we have in Uruguay, that mill and forestry sector.
I still feel there is some hype in forest industry in Uruguay, it’s what Nokia was for Finland in the 90s, so there was hype in Finland, everybody wanted to work on Nokia. But forest industry has, in a way, had the same position in Uruguay.
We have really talented employees. The whole educational level of our mill technicians is really, really good.
And I can honestly say because I have been working for all those pulp mills we have in Finland, so we have the best manning. They are really enthusiastic, they want to develop themselves, they want to develop the processes, and they are motivated.
How optimistic are you for the future of the forestry industry in Uruguay?
I am, because we can keep forestry industry competitive in Uruguay. Of course, we must work for it, we of course have a desire that government is also in a way helping that development within the investments to infrastructure, for example.
And the market will stay there so in a way the big markets like China, even Europe, although there is, let’s say it in another way. If you take plenty of writing that has been going down in U.S. or Europe, but packaging and products, these products, these are growing still in all markets, but in China everything is growing, so pulp will be needed in a few years, there will be growth with that kind of developing economics like China.
Their GDP is growing, they use all the time more tissue products, so doors are open.
We’re seeing, as I mentioned, going back to the whole, let’s say, foreign policy of Uruguay. Once again, you’ve traveled the world, you’ve worked in many foreign countries, yourself being an ex-patriot in this country. How do you see Uruguay positioning itself within an international community? Do you think there are still efforts to maximize Uruguay’s presence in the outside?
Yes, I think so. Uruguay could be still developing the image that could be still more well-known.
Because this is a great country, so Uruguay should be marketing itself still, based on all kinds of indexes.
I listed some of those, so democracy index, environmental sustainability, corruption protection, political stability. Uruguay is very good in Latin America in those comparisons.
So that should be used better. Even using the national soccer team or whatever to get the country more known.
There’s so many things to communicate about this country, especially within the business climate, so I agree with you. Well, one final question, Mr. Juha, and this will be your final message to the readers of both USA Today and the Worldfolio magazine and the G20, in a few sentences could you give a final message about UPM’s contribution for the past twenty-five years to the overall development of Uruguay?
UPM has been present in Uruguay for twenty-five years. We were the first company building a state of the art pulp mill into the country.
We have developed a whole cluster around forestry and pulp production, and that’s led to a situation where Uruguay has not only meat and soy, but also forest products as key export items from this country.
So in a way that pulp production forestry has been a really key component in developing this country to the situation where we are now.
So Uruguay has had almost ten years of very huge GDP growth because last year it was going down a bit but so was the whole GDP growth in the whole world.
But still, on a positive side, now have the competitor running in this country as well, so probably pulp will be the biggest export item this year. Let’s see.