Some thoughts on Currents and Turbulence in American Forest Management

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Some thoughts on Currents and Turbulence
in American Forest Management
Professor Frank Greulich University of Washington
Nihon U. Sept. 2002
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American Forest Industry - Responding to Change

• The operational environment of the forest
  industry is changing rapidly.

• Managers are now confronting a growing level of
  uncertainty in their revenue and cost structures.

• Managerial reaction is to pursue strategies that
  reduce the risks associated with this uncertainty.

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The Rapidly Changing Operational Environment of
Forestry
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The Response of Industrial Forestry
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First Case

• How a
• Changing Regulatory Environment
• and
• Changing Regional Demographics
• - - - - - - - - - - - - -
• Led to
• Industrial Timberland Divestiture
• and a
• Timber Supply Hedging Strategy

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First Case

• A new, nonprofit land trust (Evergreen Forest
  Trust) has struck a tentative deal to buy
  Weyerhaeuser's 100,000-acre Snoqualmie Tree Farm
  in the Cascade foothills .....

• ... (Weyerhaeuser) company spokesman Frank
  Mendizabal said development pressures and
  environmental regulations, including the
  Endangered Species Act, made it increasingly
  difficult for Weyerhaeuser to manage the land as
  a commercial forest. Chinook salmon, a threatened
  species, spawn in the forest's streams.

• The trust said it would continue to manage most
  of the land as a working forest. But it said
  logging would be prohibited or strictly limited
  on about 20 percent of the property to protect
  streams, wetlands and wildlife, and overall
  timber harvest is expected to drop.

Seattle Times Friday, January 18, 2002
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Second Case

• How
• Changing Regional Demographics
• - - - - - - - - - - - - -
• Led to
• Forest Land Output Diversification,
• Internalization of Externalities,
• and
• Mooted Water Quality Regulations

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Second Case

• ... the steadily increasing demand for
  recreation convinced company (International
  Paper) executives that charging fees for
  recreation made sense.1

• Today two-thirds of (International Papers) six
  million acres in the United States is managed
  profitably for wildlife and recreation.2

• In one year, International Paper Company made
  35 of its woodland operating profits in Texas,
  Arkansas and Louisiana from leasing the hunting
  rights of its forests.3

• ... forest managers modified their methods and
  made wildlife habitat a higher priority.
  Corridors of trees 100 yards wide were left
  between harvested areas, clumps of older trees
  were left standing beside younger trees, the size
  of cut areas was reduced, and harvests along
  streams were halted.2

1 www.perc.org 2 PERC Reports 12/98 3
Economist 10/22/88
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Third Case

• How a
• Changing Timber Input
• and
• Free Trade Agreements
• - - - - - - - - - - - - -
• Led to
• Output Diversification,
• Research Development
• and
• Off-shore Investment

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Third Case

• The Weyerhaeuser Company (which) said it will pay
  720 million to acquire TJ International ...
  obtains full ownership of Trus Joist MacMillan,
  of which Boise-based TJ International owns 51
  percent. Weyerhaeuser acquired a 49 percent stake
  of Trus Joint when it bought Canadian lumber
  maker MacMillan Bloedel for 1.9 billion in
  November.

• Sales of engineered wood are expected to jump in
  the next three years, say industry analysts.
  Engineered wood is gaining market acceptance for
  use in floors, beams and other applications
  because it doesn't warp easily and is easier to
  install.

• Trus Joist MacMillan's patented manufacturing
  technologies transform wood fiber into
  high-performance, consistent products. The
  company uses small-diameter trees that provide
  resource-efficient alternatives to traditional
  sawmill products.

• Weyerhaeuser said it is too early to tell if
  layoffs will result from the acquisition. It does
  not anticipate layoffs because it does not
  produce the same products as Trus Joist MacMillan
  ...

The Forestry Source, 1/2000
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Fourth Case

• How a
• Change in the Market Place
• - - - - - - - - - - - - -
• Led to an
• Industry Association Response

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Fourth Case

• (Green) certification represents a new way and
  cost of doing business. While it may not
  contribute to short-term profitability, becoming
  certified is the price of entry to compete in
  some markets. While certification is a relatively
  immature market, those who ignore it may do so at
  their own peril.

• The Home Depot and BQ are the worlds first and
  third largest retailers of building materials.
  They are both promoting the use of certified
  forest products. It is reasonable to expect
  other retail chains to follow suit. BQ has a
  goal to sell 100 certified wood products with
  the FSC ecolabel by Dec. 1999.

• The Sustainable Forestry Initiative (SFI) is an
  ambitious program of the American Forest Paper
  Association. Compliance with SFI guidelines,
  principles and performance measures is mandatory
  for all AFPA members who own over 90 of the
  industrial forestland in the United States.

Eco-Link 9(1)
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Managers of American Forest Industry are
responding to increased uncertainty

• by actions that reduce their expected risk,

or

• by actions that stabilize or reduce risk
  variability.

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Some major impacts on the management of
industrial forestry lands

• Silvicultural systems are being re-examined
• multiple use and even ecosystem
  management objectives are being
• followed or considered.

• Land management activities are becoming much more
  restricted
• increased timber harvesting costs
• greater internal external oversight