Canada: Business Ecosystems: Of Forests & Trees

Last Updated: November 2 2001
Article by Bruce McIntyre

Co-written by Rosie Lombardi

The conservation of forests has become a flash point for urgent environmental concerns. NGOs are taking action by joining forces globally to use the free market to pressure retailers at the consumption endpoint. The effects are spreading like wildfire, rippling across the global forest industry and down supply chains. Bottom line: NGOs and consumers increasingly want proof that business practices are sustainable.

A forest ecosystem is defined as a community of plants and animals interacting with one another and the environment. In prehistoric times, the only non-forested areas of the earth existed where the land was too wet, dry or cold to sustain tree growth. Vast unbroken expanses of forest once stretched from the equator to the arctic timberline. But only about 30% of the world is forested today. Huge areas of forest, most of it tropical, are being cleared every year. Much of the clearing is not for commercial forestry purposes, where trees are harvested and replanted, but for agricultural purposes or for fuel. The clearing and burning of trees on such a massive scale contributes to the greenhouse effect, not only by increasing the amount of carbon dioxide released into the atmosphere, but also by eliminating the very trees that would have absorbed and reduced carbon dioxide generated by humanity. Concerns are also being expressed about maintaining ecosystem health and diversity in the areas that are managed for commercial forestry.

Emotions run high as debate rages over the magnitude of the greenhouse effect and the role of forest management and conservation in averting the possibility of planetary ecocide. How to reconcile the competing interests of environmentalists, forestry companies, emerging economies, and consumers? The first glimmerings of a potential solution are emerging in this emotionally charged arena.

The Domino Strategy

During the nineties, clashes between environmental activists and logging companies were frequently reported in the media. Nowhere were these clashes fiercer than on the west coast of North America, home of one of the last temperate rainforests. In California, activists chained themselves to trees, barricaded logging roads and staged dramatic protest actions to publicize their causes. The standoff at Clayoquot Sound in British Columbia (BC) in 1993 was the largest civil disobedience campaign in Canadian history, according to Canadian Dimension.

During this period, activists campaigned at logging sites, with the objective of stopping particular logging companies or timber sales. As a result, activist efforts were often regionally fractured. With little coordination between regions and without any reduction in consumer demand for forest products, the campaigns often resulted in displacement rather than reduction of logging activities. For example, in 1995, the Rainforest Action Network (RAN) campaigned to save California’s Headwaters Forest. The campaign was a success, but an unintended consequence was increased demand for red cedar lumber from BC as the market alternative to California redwood. At the same time, RAN was also campaigning to protect Clayoquot Sound. The campaign was a success – but led to harvesting of wood from other controversial areas of the BC coast.

By 1997 the lesson had become clear. Activists looked beyond regional goals and began an intense and coordinated effort to save all endangered forests. An important shift in strategy occurred: instead of targeting forestry companies at the point of logging, activists switched to pressuring leading retailers at the consumption endpoint.

Home Depot was a primary target: it is the largest home improvement retailer in the world, selling about 10% of US lumber. RAN activists staged hundreds of Seattle/WTO-style ‘direct actions’ to persuade the retail giant to stop selling wood from endangered forests. In August 1999, Home Depot announced it had agreed to phase out selling wood from endangered forests by the end of 2002. The first, critical domino was set in motion.

Immediately following Home Depot’s announcement, activists contacted the company’s ten major competitors. Home Depot’s biggest competitor, Lowe’s, quickly followed Home Depot’s lead. Activists then targeted retailers who did not respond to their letters and phone calls. In rapid succession, six more of the top ten US wholesalers and retailers agreed to meet demands to phase out wood from endangered forests: HomeBase, Menard’s, 84 Lumber, Lanoga, Wickes Lumber and Payless Cashways.

In February 2000, the activist coalition shifted its focus to the home building industry. A national ‘day of action’ was scheduled for the two largest home builders, Centex Homes and Kaufman & Broad. Before the demonstrations were set to begin, both companies agreed to meet activists’ demands. Another home builder, Ryland Homes, quickly followed suit. As did window-making giant, Andersen Corp.

Activists then switched their focus to yet another area. Lumber makes up only half of all wood products sold in the US. The other half is paper, and the largest paper retailer in the US is office supplies giant, Staples. So Staples became another target for activist actions, and agreed to meet with activists. Banks, technology companies, cosmetics firms, publishers and others who finance the forest industry or utilize paper and wood products in manufacturing or packaging are also on the target list.

Activists have discovered the power of the marketplace as a force for change. They have successfully targeted leading wood products retailers in various segments of the industry: home improvement, wood fixtures, construction, and paper. But the momentum across the industry has not stopped there. The effects of the procurement policies of these leading retailers are now rippling down their supply chains, reaching primary and secondary producers and the manufacturers who supply wood products to them.

Home Depot, for example, faces a monumental task due the sheer volume of wood products that moves through its stores. In addition, the process of tracking a product’s source is long and complex. Home Depot is consulting with the World Resources Institute (WRI) to identify endangered forests, using a geographic classification system the WRI is developing. Then the retailer and its suppliers need to work backwards from each product – from plywood to furniture to the paddles on ceiling fans – to determine the origin of the wood. "This process could be one step or 20, depending on the product. Global markets are agnostic to the source; once a product enters the market, no one has any idea where it came from," says James Sullivan, operations manager for the Forest Stewardship Council (FSC). If the source turns out to be an endangered forest, Home Depot has pledged it will use its purchasing clout to persuade producers to either improve their forest management practices or to provide acceptable substitutes.

The success of these efforts hangs on some crucial questions: what forest management practices should these retailers support to honour their commitments? And where are companies to obtain their wood?

Supply And Demand

Eco-labelling has grown commonplace over the past decade. Increasing consumer awareness of environmental issues has fuelled greater demand for green products. Companies began labelling their products as a way to inform consumers about environmentally sensitive ingredients, features or processes. But in the early days, many companies made misleading or false claims about their products. For example, anyone could claim their food was grown organically, without any evidence, and a product like vinegar could be labelled ‘cholesterol-free’ in the days before nutrition labelling was regulated. To counteract these excesses, certification was introduced and developed to provide independent verification of a company’s green claims by a credible, independent organization. Consumers not only want to be told that products are green, they want proof.

For wood products, the evolution of certification has followed a different and less gradual path than organic foods. NGOs are driving demand for certified wood, not the end-consumers. Although consumer awareness is growing dramatically in this area, there has not been a mass, grass-roots surge in demand, as for pesticide-free food or BSE-free beef. Wood products have not followed the same economic evolution as organic foods, where consumer demand stimulated supply, and consumer dissatisfaction drove the development of labelling standards, certification systems and seals of approval. Instead, intermediaries like retailers are scrambling for wood supplies to satisfy NGO demands.

The Home Depot announcement suddenly jump-started the competition to exploit market interest in North American certification. In Europe, about 100 companies have also pledged to phase out purchases of endangered wood, including major retailers like Britain’s do-it-yourself home improvement chain, B&Q, and Swedish furniture giant, IKEA. Demand for certified wood has exploded.

But only a small percentage of the world’s total wood supply is certified at present. Due to limited consumer demand, certified wood has been a niche market until recently. Home Depot has won plaudits for pledging to purchase certified wood, but company officials say that with little certified wood available, it is impossible to meet customer demand. "If we bought all the certified wood on the market today, it wouldn’t supply our 50 Los Angeles stores for a year…let alone 800 stores," says Suzanne Apple, who handles environmental issues for Home Depot.

How are these market forces affecting wood producers and manufacturers who are struggling to meet this major surge in demand for certified wood?

Certified Confusion

There are several forest management certification systems in effect in various regions, but only one certification system, the Forest Stewardship Council (FSC), has general NGO approval. The FSC was founded in 1993 by the Rainforest Alliance, WWF, and other environmental groups to support environmentally appropriate and economically viable management of the world’s forests. Obtaining FSC certification can be a very lengthy and expensive process, sometimes requiring several years to put new forest management systems in place. J.D. Irving Limited, for example, has spent about five years and $7 million dollars obtaining its FSC certification, according to The Chicago Tribune. Companies meeting the forest management standards and who have implemented a chain of custody tracking system may use the FSC’s logo. "So instead of castigating the industry, we decided to give them guidance and objectives to make for a green seal of approval," says Chris Wille of the Rainforest Alliance. But only about 5% of the world’s working forests are certified to the Council’s standards, according to Associated Press.

The FSC has limited industry support globally. Instead, a bewildering number of standards are in place in different regions. In the US, a standard endorsed by industry and several NGO’s, the Sustainable Forestry Initiative (SFI), is common. In Canada, the Canadian Standards Association’s (CSA) criteria are used. In Europe, the FSC had originally been supported by several large industry players, but a breakaway industry standard was established to meet the demands of smaller forest owners, the Pan-European Forest Certification Council (PEFC). Still other companies have adopted the International Standards Organization (ISO) standards. "The impact of nationalism as an impediment to developing an international certification standard cannot be overestimated," writes John Caulfield in National Home Center News.

Many retailers give preference to FSC certification, and this could have a significant influence on emerging economies. Some African countries in dire economic straits see forest preservation and certification as neo-colonialist hypocrisy. "You destroyed your environment and got developed. Now you want us to stop doing the same. What do we get out of it?" says François Bikoro of Africa Express. Malaysia, one of the world’s leading timber exporters, was initially hostile to certification, considering it a Western plot to foist foreign environmental standards and a ploy to keep Asian wood out of Western markets, according to the Far Eastern Economic Review. Malaysia sells much of its wood to China and Japan, but it is now considering adopting certification standards in order to improve access to lucrative Western markets. Brazil, home of the Amazon Rainforest, has a system in place for sustainable logging called Reduced Impact Logging (RIL). But some big Brazilian logging companies that already use RIL, such as the Rosa Group, are now applying for other types of certification in order to expand exports to Europe and North America, according to The Economist. The development of international forest certification standards is growing increasingly crucial to gain access to Western markets.

What’s The Difference?

There are some important differences between major forest management certification systems, with repercussions to retailers struggling to honour their pledges. Full-blown certification involves three major components: Are forests being managed and harvested in an ecologically sound and sustainable manner, according to standards? Are these forest management practices verified by credible third parties? Can the source of the wood be tracked from the forest through the supply chain to the end product, enabling the use of an eco-label?

On the sustainable forest management front, all the standards have common elements but each one has different nuances deemed appropriate for particular regions with specific climatic and soil conditions, species of trees, and local economic and social factors. Most of the major certification systems in Europe and North America require certification by an independent third party. But only the FSC and PEFC systems currently offer a product eco-label.

The chain of custody requirements of eco-labelling are difficult but not insurmountable. Under FSC, forestry companies need to demonstrate they have management systems in place to track and prove that the wood that came from a certified forest is the same wood that went to the mill for processing and went into the end products. Companies effectively need dual processing systems in place to sort, transport, process and store certified wood separately from uncertified wood. This requirement can be complex for big companies that may source wood from hundreds of different suppliers and locations, and is particularly complicated for pulp and paper operations that blend and produce wood fibre in continuous processes.

Labelling makes life somewhat easier for retailers like Home Depot. But unlabelled wood products like furniture and kitchen cabinets that may have passed through many intervening hands could require some complex detective work to track the wood used in the product back to its source. Each step along the way needs to have its own certification process. "Wood is being shipped from New Zealand to China to make toilet seats for the United Kingdom, for heaven’s sake. Each manufacturer that’s involved in the distribution process would have to be certified," says Debbie Hammel, a former director of forest conservation programs for Scientific Certification Systems.

Industry observers agree all these issues are the temporary growing pains of a market in transition. Organizations like the SFI and CSA have already incorporated third-party verification, and announced plans to introduce eco-labelling in the near future, which should make their systems more acceptable to NGOs. Wood producers and manufacturers realize that information about their sources and practices will grow increasingly critical, and are modifying their management and supply chain information systems accordingly. Pioneering retailers who have made pledges toward environmentally sensitive procurement practices will likely introduce public reporting of the amount of certified and recycled wood products they are buying and selling, so better information about the conservation and management of forests will be publicly available to all stakeholders.

But where do consumers ultimately stand on these issues? And the big, billion-dollar question is: Are consumers prepared to pay more money for environmentally sensitive wood and paper products?

Consumers: The Elusive Green Premium

Consumer studies and surveys suggest that environmental awareness is growing rapidly. According to Roper Starch Worldwide, 55% of US adults fall into the green consumer category. The importance of environmental issues is likely to grow, observers note, as the demographics of environmentally-aware consumers continue to change. One factor driving consumers’ interest is the high degree of concern displayed by their children. "Now every year, … kids are educated about environmental and social issues [at school]. They come home every day and exert tremendous influence on their parents. And these kids will ingrain environmental and social issues in their children as well," says Aaron Lamstein, a member of Wal-Mart’s Environmental Advisory Board.

But does this awareness and concern translate into a willingness to pay more for environmentally sensitive products? In a survey carried out by Cambridge Reports-Research International in 1993, over 30% of consumers said they were willing to pay a 10% or higher premium for green products. Later surveys corroborated these early findings: a significant proportion of consumers claim they would pay more for green products. A green premium of about 10% on environmentally sensitive products has become an industry expectation.

But these surveys’ findings are ambiguous, as hypothetical and actual consumer behaviour is frequently at odds. A survey conducted for Tesco, a British supermarket chain, found that about 50% of consumers said they were willing to pay extra for green products. However, Tesco store receipts suggested that, of the total spent on products in categories for which premium-priced green goods were available, only one-tenth of the grocery bill was spent on those green goods.

There are many reasons for this disconnect. Confusion with the bewildering array of complex issues embodied in dolphin-friendly tuna, shade-grown coffee, biodegradable plastic, and other labelling is one factor. Scepticism and distrust with the marketing claims made is another. But by far the most significant factor is the contradiction inherent in producers who offer both an environmentally sensitive product and an alternative that is not.

According to a focus group study conducted by Creative Research International for Agriculture Canada, consumers have difficulty justifying higher prices and don’t understand inconsistent offerings: if a company thinks the environment is so important that it will produce an environmentally sensitive product, why are they continuing to produce an insensitive alternative?

Consumers express a willingness to do the right thing for the environment, but they just don’t know what it is; they want guidance, not debate. Most think that prices for environmentally sensitive products are higher or the same as other products, but think prices should be the same or lower. The report advised the industry to reach consensus on what is or is not environmentally sensitive, work environmental considerations into all products and services, explore the use of a common symbol to denote environmental sensitivity, and abandon assumptions that a green product is a premium product.

On the forest industry and certification issues, Paul Fudge, a vendor of certified wood flooring writes in Environment News Service: "Several consumer surveys lent support to the popular assumption that consumers would be willing to vote for good forestry with their wallets, and a 10% premium for certified wood products was widely anticipated. I believe these pioneering surveys were fundamentally flawed by a reliance on consumer opinions rather than actions. Think about it. If the forest owner, sawmiller, and manufacturer each get a 10% premium for their handling of certified wood products, and the distributor and retailer tack on an additional 5%, the street price of a $100 table will have inflated to about $160, without having altered the physical appearance or performance one iota. While producers, distributors and retailers haggle over how to divvy up this highly elusive and dubious premium, distrust and competition needlessly undermine the essential point of third-party certification: better forestry."

A complex, inter-related business ecosystem is emerging in this area that mimics organic ecosystems in many ways. But the issues and challenges faced by the forest industry are not unique. Similar eco-labelling/certification scenarios will likely develop in other controversial areas, such as genetically modified foods. If environmentally sustainable practices are needed to ensure the continued existence of natural resources, and the industries that rely on them, then green pricing that goes beyond cost recovery is ill-advised. Consumers increasingly expect business to do the right thing for the environment, consistently, because it is the right thing. And they want proof.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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