A Report compiled by
the Boycott Woodchipping
Campaign

Daishowa Paper Manufacturing Company Ltd

Corporate Overview June 1999

Daishowa is located in Fuji City, the home of Japan's pulp and paper industry, renowned for its abundant supplies of pure underground water. Poor environmental controls mean that Fuji City's water supply now faces the long term threat of contamination from toxic pulpmill wastes disposed as landfill at the base of Mount Fuji.

Daishowa was first established in 1921 as a raw material broker to the paper industry, built its first mill at Fuji City in 1933, listed on the stock exchange in 1961 and was Japan's second largest paper company by 1965.

Goolengook forests after clearfell logging and burn operations

Limited domestic sources of pulp forced the industry to turn to foreign suppliers, and Daishowa led the search as it was the only major paper company not to own paper producing land at home. The first shipment of woodchips from the west coast of the US began in April 1965. In 1967, Daishowa expanded its operations into Malaysia and Australia.

Daishowa's expansion, especially into the pacific north-west and eastern Canada continued through the 1970's and '80's, spurred by a ever increasing escalation in the value of the Japanese yen.

Daishowa's success and expansion is attributable to the success of the Japanese economy, steady increase in consumer demand and the expansionist policies of its eccentric but now deceased former Honorary Chairman, Mr SAITO Ryoei.

Overall however, Daishowa performed poorly during the 1970's and most of the '80's, but experienced a resurgence in the late 1980's, attributable to a boom in domestic consumption and favourable exchange rates. At this time the company achieved its highest profits ever. Daishowa's fortunes soured rapidly however, and by 1990, despite increasing sales, announced its first operating loss since 1981, due to financial mismanagement by Chairman SAITO and a subsequent Y450 billion debt. Daishowa was in its weakest financial position ever, receiving a SELL rating from the international securities giant Barclays.

Daishowa's risky corporate behaviour reflected that of the paper industry throughout Japan at the time. Japanese pulp and paper companies had an obsession with obtaining market share rather than achieve profits at a time when company earnings growth was low. With lead times in the development of new markets in the industry, increased capacity was co-inciding with a peak in consumer demand. Expansions were being financed with borrowings so profitability slumped and the financial position of companies such as Daishowa became fragile.

As a result, an ambitious salvage plan of the company began in 1991, including development of new markets to increase sales, increased prices, asset sales, cutting costs and operation shut downs. Major debtors included Marubeni Corporation, the Industrial Bank of Japan, Asahi bank and Fuji Bank. The inability of Daishowa to increase its prices due to a slump in consumer demand in the early 1990''s resulted in Daishowa not meeting its 1991 targets.

Following the arrest of Saito for bribery and company fraud, and the resignation of his son Saito Kiminori as President, in September 1994, Daishowa, with trading company giant Marubeni Corporation and major debtor banks, struck an accord to again attempt to rebuild the company's fortunes with a 5 year plan, including a substantial share buy out by the debtors and the appointment of senior executives of debtor banks to directors of Daishowa.

While many of the components of the salvage plan replicated those of the 1991 salvage plan, an important difference was the increased involvement in the corporation by Daishowa's major debtors, particularly the Marubeni Corporation and the Industrial Bank of Japan. These debtors, along with 6 other financial institutions, purchased over 11 million shares in the company. In 1995, Marubeni became Daishowa's largest shareholder. Marubeni has been accused of illegal logging operations in Indonesia, logging old growth mangroves for export woodchips in 1990, and has investment in pulp and paper operations closely linked to the Suharto family.

Daishowa's largest shareholder, Marubeni Corporation, is the world's largest trader in pulp and paper products, including wood chips and pulp logs, and has financed several joint venture operations with Daishowa. In 1992, Marubeni Corp put up half of the Y110 billion required to purchase Daishowa's Peace River pulp mill in Alberta, Canada, and is now the sole agent for the mill.

Marubeni is also a major importer of woodchips from Australia, mostly from Western Australia.

In January 1995, Daishowa's Canadian subsidiary, Daishowa Inc, filed a lawsuit against the 'Friends of the Lubicon', a group established to support the traditional owner's struggle against Daishowa's Peace River pulpmill and logging operations in Alberta. Daishowa's legal action focussed on what the company considered to be illegal measures to stop customers buying its kraft paper products, as part of the Lubicon's boycott campaign against Daishowa.

The outcome placed some restrictions on the 'Friends of Lubicon' campaign, but overall the boycott campaign was allowed to continue. Apparently, KFC's Canadian operations have withdrawn their substantial packaging contract from Daishowa, as a result of the 'Friends of the Lubicon' campaign.

The new shareholders subsequently reduced the share purchase stranglehold over the company by Saito, and company forecasts had improved by 1995. Daishowa's only prospects for expansion appear to be Brazil and/or Indonesia.

Who's Who in Daishowa - SAITO Ryoei

Daishowa's infamous but now deceased former Chairman, SAITO Ryoei almost sent the corporation into insolvency as a result of massive debt accumulation, excess capacity and failed revitalisation plans. He was Daishowa's president from 1961 to 1982, but resigned to take responsibility for the company's poor business performance and his inappropriate use of company funds. He returned in 1996 as the company's Honorary Chairman and continued to control Daishowa through his eldest son, Kiminori, who became President in 1989. His personal fortune at the time of his death was thought to be worth approximately $US1 billion.

The fortunes of Saito Ryoei and Daishowa have been inextricably intertwined. For more than 30 years he dominated the company Daishowa, turning it into one of the world's largest pulp and paper corporations, with operations all over the world, and himself becoming one of Japan's richest men.

In October 1995, Saito was found guilty of paying one of Japan's prefectural governors a Y100 million bribe in 1991 for development favours given to Daishowa affiliates.

As one might expect, ex-Chairman Saito's political allegiances were close and conservative. Saito and Daishowa made at least Y164 million in legitimate donations to political parties between 1988 and 1991. More than Y160 was to the ruling Liberal Democratic Party, including one of Saito's sons who is a member of the House of Representatives. Another of Saito's sons is a former Minister for Construction and Governor, while another son is married to the niece of former Prime Minister Yasuhiro.