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Market Shifts and Certification: Implications and Innovations

Market Shifts and Certification: Implications and Innovations. by Catherine M. Mater President.—Mater Engineering Board Member – Forest Trends Senior Fellow – The Pinchot Institute (DC) 101 SW Western Blvd. Corvallis, Oregon 97333 Tel: 541-753-7335 Fx: 541-752-2952

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Market Shifts and Certification: Implications and Innovations

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  1. Market Shifts and Certification:Implications and Innovations • by • Catherine M. Mater • President.—Mater Engineering • Board Member – Forest Trends • Senior Fellow – The Pinchot Institute (DC) • 101 SW Western Blvd. • Corvallis, Oregon 97333 • Tel: 541-753-7335 Fx: 541-752-2952 • Email: catherine@mater.com • www.mater.com Mater Engineering, Ltd

  2. Today we will review : • Innovations in the marketplace: • Suppliers • Buyers • Wall Street Mater Engineering, Ltd

  3. Today we will review : • Implications for US public forestlands • What’s happened • What’s new • Specific implications for USFS lands Mater Engineering, Ltd

  4. First, let’s look at suppliers … Mater Engineering, Ltd

  5. SFI certified industrial forestlands continue to grow in volume in the US: • ~ 75 mm acresprojected to be under certified status by next year, but • Lack of chain-of-custodyprogram element continues to serve as major constraint to market acknowledgement. Mater Engineering, Ltd

  6. 2003: Home Depot and Tembec (~$4 billion in sales/yr.; 55 manufacturing operations) announce major partnership: • Agree to offer large amounts of FSC-certified softwood lumber into the US Home Depot markets • All Tembec holdings – 32 mm acres – to be certified by 2005. Mater Engineering, Ltd

  7. 2003 Domtar: Third largest uncoated freesheet paper producer in NA announces agreement with WWF to certify 22 mm acres of Canadian forests under FSC by 2006 Alberta-Pacific (AlPac): NA’s largest single line kraft pulp mill to undergo FSC certification in 2005 (~15 mm acres) Mater Engineering, Ltd

  8. 2004: Abitibi Consolidated • Global leaders in newsprint , uncoated papers, and solid wood products • $5.4 billion in annual sales • 27 paper mills; 22 sawmills; 4 engineered wood system mills throughout CAN, US, UK, S. Korea, and China • Manages over 40 mm acres of forestland SFI, FSC, CSA certified Mater Engineering, Ltd

  9. 2004 Idaho Potlatch Corporation • Already SFI-certified • First US publicly-traded corporation to become FSC-certified (Idaho 600,000 acres) . • Just completing FSC-assessment on all other timber holdings in US. Mater Engineering, Ltd

  10. Looking at buyer demand for certified wood products. . . Mater Engineering, Ltd

  11. . . . the 2004 Summer Olympic Torch was made from FSC-certified wood? Did you know . . . Mater Engineering, Ltd

  12. . . . ESPN’s 2004 Summer X Games used FSC-certified wood for their skateboard ramps? Did you know . . . Mater Engineering, Ltd

  13. 2003 Lanoga Corporation (Lumbermans) is FSC-certified and becomes the first retailer in the US to finance certification of public forestlands (WA state). (FSC and SFI) Mater Engineering, Ltd

  14. 2003 Time Inc. Paperco • 2003: 60% of 600,000 tons of wood fiber per year for newspapers, book companies, and magazines will come from a certified (FSC and SFI) supply. • By 2004 – 70% • By 2005 – 85%. Mater Engineering, Ltd

  15. Office Max • $6.6 billion in revenue first 9 months of 2004 • 950 stores throughout US • 40,000 catalog associates across US . . . as of November 2004 is FSC chain-of-custody certified Mater Engineering, Ltd

  16. (2004) The Buffalo News: more than meets the eye. “ You see, behind every single word in the Buffalo News, you’ll find newsprint. And about 70-80% of the newsprint that the Buffalo News uses has got the Forest Certification Council (FSC) seal of approval on it. “   “ So every time you pick up a copy of the Buffalo News, you can rest assured that you’re supporting responsible forest management. And that’s more than just words. “ Mater Engineering, Ltd

  17. Kinko’sfirst major paper supplier (over 1,000 stores in US) to offer FSC – certified paper.) • Quad/Graphics, the world’s largest privately-held printer of catalogs, magazines, and other commercial products ($1.8 billion annual sales) becomes FSC-certified. Mater Engineering, Ltd

  18. In 2004 makes commitment to bring “green” products into the hair industry. • 10,000 salons across US. • $1 billion in annual revenue, . . . and . . . Just entered into agreement to use FSC-certified wood for product pallets, make-up pencils, and product display stands in salons. Mater Engineering, Ltd

  19. Leadership in Energy and Environmental Design (LEED) The US Green BuildingCouncil developed the LEED Green Building Rating Systems to rate new and existing commercial, institutional, and high-rise residential buildings according to their environmental attributes and sustainable features. Mater Engineering, Ltd

  20. March of 2000: 12 buildings in the US had received LEED certified status. • By end of 2000: ~ 8 million sq. ft. of buildings were undergoing LEED certification. • By end of2004: over 208 million sq. ft. undergoing LEED certification in the US. • Membership within LEED has doubled annually over the last three years. Projects in 50 states; and • Now accounts for 5% of new commercial projects, and 25% of new construction in the public sector.  LEED Growth (Introduced in 1999) Mater Engineering, Ltd

  21. Significance to certified lumber: • Gives credit for FSC-certified wood use; (and strong effort underway to get SFI acknowledged). • Gives credit for rapidly renewable resource use (plantation resource) • Gives credit for use of materials grown in the local/regional area (500 miles) Mater Engineering, Ltd

  22. Clue Possible new announcements in 2005 (FSC) Mater Engineering, Ltd

  23. Finally we convene on Wall Street . . . Increased access to capital Reduced insurance rates Increased stock valuation Mater Engineering, Ltd

  24. New events unfolding almost daily: Citigroup – the world’s largest financial institution just announced its new corporate policy providing specific investment funds dedicated to FSC certified products. Others targeted to “meet or beat” Citigroup: US Bancorp, Wells Fargo, Goldman Sachs, JP Morgan, John Hancock. Mater Engineering, Ltd

  25. Innovest- internationally-recognized investment research and advisory firm ($1 billion under advisory mandates) – determined that FSC-certified companies achieve superior stock market returns. In 2003 upgraded Domtar from a BBB to A rating when the company committed to FSC-certification of all its woodlands and operations throughout Canada. Mater Engineering, Ltd

  26. Swiss Reinsurance Company– one of the world’s largest reinsurers in life, health, property, motor, and liability insurance creates investment portfolio (valued at ~ $50 million) committed exclusively to sustainability. Has begun investing in FSC-certified companies. Mater Engineering, Ltd

  27. Implications for US public forestlands Mater Engineering, Ltd

  28. Pennsylvania - 1998 Minnesota - 1998 New York - 1999 Maine - 2001 North Carolina - 2001 2.1 mm acres FSC 450K acres FSC & SFI 600K acres FSC ~60K acres FSC & SFI 700K acres FSC Tennessee - 2001 Washington - 2003 125K acres FSC 1.2 mm acres FSC & SFI Mater Engineering, Ltd

  29. 30 Indian Nationsstep to the plate: FSC &SFI pre-assessments (7 tribes proceed with FSC full assessments) 16 mm acres of forestlands Mater Engineering, Ltd

  30. Military: 40,000 acres Even the Department of Defense Steps to the Plate … Fort Lewis Army Base (WA State): FSC-certified Mater Engineering, Ltd

  31. Michigan - 2004 Maine - 2003 Wisconsin - 2004 Minnesota - 2004 Maryland - 2004 Time Inc. Paperco intervenes and . . . Mater Engineering, Ltd

  32. Oregon – Dec. 2004 developments in certification • Just announced project to evaluate Oregon forestry practices to PEFC standards • Project evaluation to apply to federal and private forest landscapes PEFC? Mater Engineering, Ltd

  33. For USFS lands, is it really so inconceivable ? Consider: even in one of the toughest places politically . . . Mater Engineering, Ltd

  34. Take Alaska for example . . . Ridiculous to think about? Mater Engineering, Ltd

  35. Based on direct interviews . . . Mater Engineering, Ltd

  36. And over 90% of that export log volume is moved by Sumitomo Forestry & Nissho-Iwai Nichimen Corporation • Sumitomo: Owns one of the world’s largest LVL & MDF mills located inNew Zealand. • Nissho –Iwai Nichimen: Now has a joint venture with Tackikawo Forest Products Ltd – a sawmill operation in New Zealand. • As of March 2003, 40% of all New Zealand plantations are FSC certified and Tackikawo Forest Products is FSC chain of custody certified. Mater Engineering, Ltd

  37. Based on direct interviews . . . Mater Engineering, Ltd

  38. For lumber flow into the lower 48 purchased by 15 companies, notable percentage of that volume went to: • Pella Windows: Who recognizes SFI, CSA, & PEFC equally and has stipulated that all of its lumber suppliers need to be third-party certified by 2008. As of February 2003 – 63% of their wood supply comes from certified sources. • Premdor-Masonite: FSC - certified • Jeld-Wen: also FSC - certified Mater Engineering, Ltd

  39. Great! …. now how do we do it??? Moving forward, the Healthy Forest Restoration Act Getting it on the ground Mater Engineering, Ltd

  40. But, constraints to forest restoration work were powerful: No infrastructure to processsmall logs(5”-12” with central focus 5”-7”) and biomass (< 5”) material. No means toinvite new investmentinto the region to process and market restoration resource. Mater Engineering, Ltd

  41. Oregon Arizona   Greater Flagstaff Forests Partnership (GFFP) COIC Mater Engineering, Ltd

  42. What we saw: • No coordinationbetween NF systems in regions • No coordinationbetween USFS ranger districts • No coordinationwith other agencies in region with harvest activity (BLM, state, DOT, etc) . . . coupled with many biomass-to-energy projects provingnot economically viable unless paired with wood product production. Mater Engineering, Ltd

  43. Stable Unstable Offered Coconino and Kaibab Timber Offering by Ranger District 1995 - 2002 Sold Mater Engineering, Ltd

  44. . . .Seed the CROP Coordinated ResourceOfferingProtocol Solution Mater Engineering, Ltd

  45. CROP • Nation’s first benchmark projects in investor landscape coordination of projected resource offering: • Within agencies (ie RD’s within NF system) • Between agencies (USFS, BLM, state, Counties, Indian nations, etc.) Mater Engineering, Ltd

  46. CROP • Focus is on “levelized” supply between key players, not necessarily adding more supply. • Premise: • “Levelized” effort must apply to volume, diameter, and species in locational context. Mater Engineering, Ltd

  47. 5 National Forest Systems AZ State Trust Lands AZ Dept. of Transportation Military Installation White Mt. Apache Nation ~200 miles  Flagstaff Investor Landscape Mater Engineering, Ltd

  48. 39% unstable supply 54% stable supply 6% Peaks P 11% Williams P P 7% Morman Lake 20% Black Mesa P P 11% Mogollon 14% Lakeside P 2% Bradshaw P 2% Payson P 18% Springerville P 6% Alpine P 2% Pleasant Valley P ROM #6: 2003 – 2007: 5” – 12+” dbh (741,904 ccf) Mater Engineering, Ltd

  49. COIC Investor Landscape • 5 National Forests • 4 BLM Districts • 10 Counties • ODOF • ODOT • Warm Springs Indian Nation / Redmond Bend Mater Engineering, Ltd

  50. Results thus far: Construction of a new small log mill announced near Flagstaff. AZ Construction of a new small log mill addition to an existing larger log processing operation likely to be announced shortly. OR Mater Engineering, Ltd

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