1. Forest Certification and the Forest Products Industry B. Bruce Bare College of Forest Resources University of Washington, Seattle November 13, 2000 B. Bruce Bare College of Forest Resources University of Washington, Seattle November 13, 2000

2. 2 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

3. 3 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

4. 4 IN GENERAL? A 1990’s initiative that encourages landowners to practice sustainable forestry and to give consumers assurance that forest products come from sustainable forests. Includes both forest certification and chain-of-custody components.A 1990’s initiative that encourages landowners to practice sustainable forestry and to give consumers assurance that forest products come from sustainable forests. Includes both forest certification and chain-of-custody components.

5. 5 WHAT IS CERTIFICATION? Process by which a forest owner voluntarilyrequests an inspection of a forest to determine if pre-defined management standards are being met.Process by which a forest owner voluntarily requests an inspection of a forest to determine if pre-defined management standards are being met. Process for assessing if a forest is managed sustainably.Process for assessing if a forest is managed sustainably. A way to communicate environmental information about forests to consumers.A way to communicate environmental information about forests to consumers.

6. 6 WHAT IS A SUSTAINABLY MANAGED FOREST? A forest managed to meet all existing regulations such that environmental, social and economic factors are balanced to meet the needs of the present without compromising the ability of future generations to meet their needs.A forest managed to meet all existing regulations such that environmental, social and economic factors are balanced to meet the needs of the present without compromising the ability of future generations to meet their needs.

7. 7 WHAT IS A SUSTAINABLY MANAGED FOREST? A land stewardship ethic that integrates reforestation, growing, and harvesting trees for useful products while conserving soil, air, and water quality, wildlife and fish habitat and aesthetics, and protecting the resource from fire, pests, and diseases.A land stewardship ethic that integrates reforestation, growing, and harvesting trees for useful products while conserving soil, air, and water quality, wildlife and fish habitat and aesthetics, and protecting the resource from fire, pests, and diseases. Protection of lands of special significance.Protection of lands of special significance.

8. 8 A SUSTAINABLY MANAGED FOREST INCLUDES Consideration of key values:Consideration of key values: –biodiversity –habitat protection and enhancement –riparian/wet land protection –protection of productive capacity –protection of endangered plants and animals –protection of cultural, spiritual, and historical sites

9. 9 FOREST CERTIFICATION AND SUSTAINABLE FORESTRY Forest certification isn’t necessary to guarantee sustainability and it may not be sufficient.Forest certification isn’t necessary to guarantee sustainability and it may not be sufficient. Certification best viewed as: 1) important “policy driver” for improving forest management standards and practices 2) satisfying buyer groups and consumers of forest products.Certification best viewed as: 1) important “policy driver” for improving forest management standards and practices 2) satisfying buyer groups and consumers of forest products.

10. 10 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

11. 11 TWO GENERAL APPROACHES? Performance-basedPerformance-based –Use criteria, performance measures and indicators to monitor performance over time (on-the -ground) Management system-based (EMS)Management system-based (EMS) –Generic guidelines and standards (ISO 14001) –Forestry-specific (SFI, CSA)

12. 12 TWO GENERAL APPROACHES Systems are evolving to be a mixture of both approachesSystems are evolving to be a mixture of both approaches

13. 13 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

14. 14 WHO SETS THE GUIDELINES? GovernmentGovernment –UNCSD (IPF, IFF, Helsinki and Montreal Processes, Santiago Declaration). Help establish criteria and indicators. Private Private –AF & PA (SFI, 1994), PEFC (Europe, 1999) –ATFS (1945), Green Tag (NFA, 1998) NGONGO –FSC (1993) –ISO 14001 (1996), CSA (1995)

15. 15 WHO DOES THE CERTIFYING? First party -- the land owner or firmFirst party -- the land owner or firm Second party -- an industry or associationSecond party -- an industry or association Third party -- an independent certifierThird party -- an independent certifier –Rainforest Alliance (SmartWood, FSC) –Scientific Certification Systems (FSC) –Voluntary Verification (SFI, PEFC)

16. 16 IS CERTIFICATION NECESSARY? Many believe that sustainable forestry is already being practiced in the developed countries where about 75% of the certified forests are now found.Many believe that sustainable forestry is already being practiced in the developed countries where about 75% of the certified forests are now found. Demand being driven by large buyer groups who are being pressured to sell certified products. Small owners may be forced to comply -- non-voluntary.Demand being driven by large buyer groups who are being pressured to sell certified products. Small owners may be forced to comply -- non-voluntary.

17. 17 IS CERTIFICATION NECESSARY? In addition, in states such as Washington, tough forest practice regulations guide forestry operations on state and private forest land.In addition, in states such as Washington, tough forest practice regulations guide forestry operations on state and private forest land.

18. 18 LOOK INTO TWO CERTIFICATION SYSTEMS? SFI StandardSFI Standard –152 member companies & licensees –84% of paper products –50% of solid wood (in USA) FSC Principles and CriteriaFSC Principles and Criteria –Presently most favored by buyer groups.

19. 19 SFIS PRINCIPLES (1-5) Practice sustainable forestryPractice sustainable forestry Engage in responsible practicesEngage in responsible practices Protect forest health and productivityProtect forest health and productivity Continually improve forest management practicesContinually improve forest management practices Protect special sitesProtect special sites

20. 20 FSC PRINCIPLES (1-5) Compliance with laws and FSC principlesCompliance with laws and FSC principles Tenure and use rights and responsibilitiesTenure and use rights and responsibilities Indigenous people’s rightsIndigenous people’s rights Community relations and worker’s rightsCommunity relations and worker’s rights Benefits from the forestBenefits from the forest

21. 21 FSC PRINCIPLES (6-10) Environmental impactEnvironmental impact Management planManagement plan Monitoring and assessmentMonitoring and assessment Maintenance of high conservation value forestsMaintenance of high conservation value forests PlantationsPlantations

22. 22 SFIS OBJECTIVES (1-3) Employ an array of scientifically, environmentally, and economically sound practices in use of forests (4 PM)Employ an array of scientifically, environmentally, and economically sound practices in use of forests (4 PM) Ensure long-term forest productivity (6 PM)Ensure long-term forest productivity (6 PM) Protect water quality by use of riparian protection measures (4 PM)Protect water quality by use of riparian protection measures (4 PM)

23. 23 SFIS OBJECTIVES (4-7) Manage wildlife habitat and conserve biodiversity (3 PM)Manage wildlife habitat and conserve biodiversity (3 PM) Manage visual impact of harvest operations (4 PM)Manage visual impact of harvest operations (4 PM) Manage lands of special significance (1 PM)Manage lands of special significance (1 PM) Promote efficient use of resources (1 PM)Promote efficient use of resources (1 PM)

24. 24 SFIS CORE INDICATORS For each performance measure a set of core SFI indicators must be satisfied to gain certificationFor each performance measure a set of core SFI indicators must be satisfied to gain certification For example, under objective #5 (visual impacts), one PM is to use green up requirements to schedule clearcuts on adjacent harvest units. A core indicator is to have a written green up plan or policy.For example, under objective #5 (visual impacts), one PM is to use green up requirements to schedule clearcuts on adjacent harvest units. A core indicator is to have a written green up plan or policy.

25. 25 SFIS CORE INDICATORS Under objective #2 (long term productivity), one PM is to use forest chemicals prudently. A core indicator is to train all forest workers using chemicals and to use trained people as supervisors.Under objective #2 (long term productivity), one PM is to use forest chemicals prudently. A core indicator is to train all forest workers using chemicals and to use trained people as supervisors.

26. 26 FSC PRINCIPLES Under principle #5 (benefits from the forest), the rate of harvest shall not exceed levels which can not be permanently sustained.Under principle #5 (benefits from the forest), the rate of harvest shall not exceed levels which can not be permanently sustained. Under principle #6 (environmental impact), ecological functions and values shall be maintained intact, enhanced, or restored.Under principle #6 (environmental impact), ecological functions and values shall be maintained intact, enhanced, or restored.

27. 27 FSC PRINCIPLES Under principle #6 (environmental impact), forest conversion to plantations shall not occur except in limited areas but not in high conservation value forestsUnder principle #6 (environmental impact), forest conversion to plantations shall not occur except in limited areas but not in high conservation value forests Under principle #9 (high conservation value forests), decisions shall always be considered in the context of a precautionary approach.Under principle #9 (high conservation value forests), decisions shall always be considered in the context of a precautionary approach.

28. 28 FSC DEFINITIONS High conservation value forest: 1)possess globally, regionally, or nationally significant species, or large landscapes contained within, or containing, the management unit where viable populations of most if not all naturally occurring species exist in natural patterns of distribution and abundance.High conservation value forest: 1)possess globally, regionally, or nationally significant species, or large landscapes contained within, or containing, the management unit where viable populations of most if not all naturally occurring species exist in natural patterns of distribution and abundance.

29. 29 FSC DEFINITIONS High conservation value forest: 2)contain rare, threatened or endangered ecosystems, 3)provide basic services of nature in critical situations (i.e. erosion control), or 4)are fundamental to meeting basic needs of local communities.High conservation value forest: 2)contain rare, threatened or endangered ecosystems, 3)provide basic services of nature in critical situations (i.e. erosion control), or 4)are fundamental to meeting basic needs of local communities.

30. 30 FSC DEFINITIONS Precautionary approach: tool for implementing the principle of forest stewardshipPrecautionary approach: tool for implementing the principle of forest stewardship

31. 31 FSC PRINCIPLES Under principle #10 (plantations), should promote the restoration and conservation of natural forests.Under principle #10 (plantations), should promote the restoration and conservation of natural forests. Plantations in areas converted from natural forest after November 1994 shall not qualify for certification.Plantations in areas converted from natural forest after November 1994 shall not qualify for certification.

32. 32 AREA CERTIFIED FSCFSC –19.1 million ha world-wide –2.5 million ha in USA (9.0 ha in Sweden) –.021 million ha in Canada SFISFI –27.9 million ha in No. Am. About 68% independently verified by third party (2001) –SFI licensees 5.7 million ha in No. Am. Both public and private. 1.3 million ha in USA.

33. 33 AREA CERTIFIED ATFSATFS –10.1 million ha in USA Green TagGreen Tag –18,000 ha in USA (as of late 1999) PEFCPEFC –23.5 million ha in Europe (15 million ha in Finland)

34. 34 AREA CERTIFIED ISO 14001ISO 14001 –21 million ha in Canada CSACSA –3.0 million ha in Canada

35. 35 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

36. 36 HOW MUCH DOES IT COST? Costs of certification:Costs of certification: –Direct cost of initial forest assessment plus required annual audit and re-assessment. –Indirect cost of improved forest management practices (i.e., reduced harvest or increased expenditures). –Cost of chain-of-custody audit

37. 37 HOW MUCH DOES IT COST? Economies of scale indicate that some small land owners will be hit harder (percentage-wise) than large owners.Economies of scale indicate that some small land owners will be hit harder (percentage-wise) than large owners. Assessment costs vary widely but may not be high -- from a minimum of $.50 - $1.50/acre for small properties to $.10 -.25/acre for larger properties.Assessment costs vary widely but may not be high -- from a minimum of $.50 - $1.50/acre for small properties to $.10 -.25/acre for larger properties.

38. 38 HOW MUCH DOES IT COST? One study shows:One study shows: –Increase in COGS due to FSC certification was <10% for 84% of survey respondents. For 50%, the increase was < 3%. Average was 5-6%.

39. 39 HOW MUCH DOES IT COST? Assume that initial assessment costs are $0.15/acre for a 2 million acre sustainable forest property (i.e., $300,000) on a 50 year rotation, and a harvest volume of 35 MBF/acre is realized annually for five years, then the cost/MBF/acre harvested is about $.04/MBF. Ignores annual audit cost and harvest reduction from surplus inventory.Assume that initial assessment costs are $0.15/acre for a 2 million acre sustainable forest property (i.e., $300,000) on a 50 year rotation, and a harvest volume of 35 MBF/acre is realized annually for five years, then the cost/MBF/acre harvested is about $.04/MBF. Ignores annual audit cost and harvest reduction from surplus inventory.

40. 40 HOW LARGE ARE THE BENEFITS? The objectives of forest certification are to:The objectives of forest certification are to: –gain (keep) access to markets that desire environmentally sensitive products –promote sustainable forest management Producers might gain market share and might experience a price premium for certified wood products.Producers might gain market share and might experience a price premium for certified wood products.

41. 41 HOW LARGE ARE THE BENEFITS? One study shows:One study shows: –For purchasers of certified wood products the average price premium paid was 6-7% with 35% paying less than 3% and 55% less than 5%.

42. 42 HOW LARGE ARE THE BENEFITS? World-wide, less than 1% of the annual harvest currently comes from certified forests. Expected to increase in near- term future as more lands are certified.World-wide, less than 1% of the annual harvest currently comes from certified forests. Expected to increase in near- term future as more lands are certified. In general, price premiums for “green” wood products are small or non-existent but market share is important in some regions such as western Europe.In general, price premiums for “green” wood products are small or non-existent but market share is important in some regions such as western Europe.

43. 43 HOW LARGE ARE THE BENEFITS? However, price premiums probably do exist in niche markets.However, price premiums probably do exist in niche markets. Demand is growing; presently is being pushed by buyer groups and not end- product consumers who are generally unaware of the existence of certified wood products.Demand is growing; presently is being pushed by buyer groups and not end- product consumers who are generally unaware of the existence of certified wood products.

44. 44 HOW LARGE ARE THE BENEFITS? One way to examine the economics of forest certification is to compute the breakeven price increase premium to pay for the costs of certification.One way to examine the economics of forest certification is to compute the breakeven price increase premium to pay for the costs of certification. See spreadsheet for illustration.See spreadsheet for illustration.

45. 45 OUTLINE What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?

46. 46 MUTUAL RECOGNITION Agreements to help “clarify” the market.Agreements to help “clarify” the market. SFI and ATFS have agreed.SFI and ATFS have agreed. In June 2000, representatives from PEFC, SFI, FSC, and many other certification groups met in Brussels. Next meeting later this month.In June 2000, representatives from PEFC, SFI, FSC, and many other certification groups met in Brussels. Next meeting later this month. Does not mean that all protocols will be accepted.Does not mean that all protocols will be accepted.

47. 47 GLOBAL FOREST & TRADE NETWORK Promoted by the WWF to create demand and increase production of certified productsPromoted by the WWF to create demand and increase production of certified products Expected to be over 1,000 members by end of 2001.Expected to be over 1,000 members by end of 2001.

48. 48 GLOBAL FOREST & TRADE NETWORK

49. 49 GLOBAL FOREST & TRADE NETWORK Most of these members promote the FSC protocol at this time.Most of these members promote the FSC protocol at this time. In the UK the WWF 95+ Group aims to have 75% of all wood products certified as FSC by 2005.In the UK the WWF 95+ Group aims to have 75% of all wood products certified as FSC by 2005.

50. 50 GLOBAL FOREST & TRADE NETWORK Several home improvement retailers in the USA have announced plans to phase out wood from “endangered forests.”Several home improvement retailers in the USA have announced plans to phase out wood from “endangered forests.” –Home Depot, 84 Lumber, Lowes, Wickes, Anderson Corp.

51. 51 CHAIN-OF-CUSTODY FSC presently has 735 chain-of-custody agreements in 37 countries.FSC presently has 735 chain-of-custody agreements in 37 countries. PEFC has issued one chain-of-custody.PEFC has issued one chain-of-custody. ISO has issued 232 pulp, paper, and paper products certificates and 109 wood and wood products certificates for an EMS. (NOT CHAIN-OF-CUSTODY)ISO has issued 232 pulp, paper, and paper products certificates and 109 wood and wood products certificates for an EMS. (NOT CHAIN-OF-CUSTODY)

52. 52 ECO-LABELS Presently, FSC and PEFC have developed “green” eco-labels for forest products tracked through a chain-of-custody agreement.Presently, FSC and PEFC have developed “green” eco-labels for forest products tracked through a chain-of-custody agreement. SFI is working hard to develop a similar program.SFI is working hard to develop a similar program. ISO does not issue labels.ISO does not issue labels.

53. 53 THE END: TOPICS COVERED What is forest certification?What is forest certification? General approaches?General approaches? Who sets the guidelines?Who sets the guidelines? Costs and benefits?Costs and benefits? Market place considerations?Market place considerations?