Re and source mean reciprocal, to use something from the Earth and then to be the source of its renewal. Today’s dictionaries define “resource” as any property that can be converted into money. Yet if we go back to the original sense of the word “re-source”, we will find that the biological sustainability of our forests lies embodied in a word that we blithely use but do not fully understand. - Chris Maser, 2001
Emerging Trends inForest CertificationThe Role of Chain of Custody Systems • Group Members • Dr. Arun Agrawal • (Faculty Advisor) • Reid Allaway • Rosanne D’Orazio • Alexandra English • Melanie Grefard • Mark Haber • Ray Holberber • Lisa Roscoe PARTNERS McGill School of Environment Sustainable Forestry Certification Watch
Presentation Outline • Reid: • Introduction • Research questions and methods • Question 1: results • Mel: • Questions 2 and 3: results • Ali: • Question 4: results • Mark: • Conclusions and Recommendations
About our Partner • Sustainable Forestry Certification Watch • Non-profit NGO based in Montreal • Provides research and analysis services to the growing forest certification community • Publishes Forest Certification Watch™ newsletter • Arranges annual conference to promote development in the certification sector • Mar. 25-29,2002 in Vancouver • Many Thanks to SFCW’s Stewart Fast for his assistance with this project www.certificationwatch.org
Goals of Forest Certification • An approach to forestry practices designed to: • Improve forest management practices • Minimize environmental impacts • Capture market incentives • Incorporate long term perspective • Recognize exemplary practices • Involve multiple stakeholders • Improve consumer confidence
The supply chain of forest products Chain of Custody Certification Delivers the message: This product has been made with timber from well-managed forests - and we can prove it!
Research Questions 1. How do the various certification systems differ in their approach to supply chain verification? 2. What are the motivations for acquiring FSC Chain of Custody certification? 3. How are North American FSC Chain of Custody certified companies affected by their certification? 4. What are the dynamics within the FSC supply chain and how do they affect different players in the chain of custody?
Methods • Literature Review • Telephone Interviews • 48 interviews total represents • 9% of all Canadian companies • 8% of all US companies • 56% response rate • both COC and COC/FM certificate holders • Data Analysis • Literature review and analysis • Survey data compiled and examined to reveal trends using charts and cross-tabulations
Research Question 1: • How do the various certification systems differ in their approach to supply chain verification? • Hypotheses • Main differences are • Verification method • Credibility • Origins • FSC chain of custody system • Is most rigorous and comprehensive • Holds the greatest potential for future developments
Origins of Certification Systems • Industry Initiatives • CSA, SFI • Environmental NGO Initiatives • FSC • Non forestry-specific standards • ISO 14000
Credibility and Verification • Systems-based vs. Performance-based • 1st, 2nd or 3rd party verification • Frequency of audits
Supply Chain Verification • Chain of custody monitoring • Systems-based (volume monitoring) • Performance based (physical monitoring) • Certification of some or all product handlers • FSC = all links in chain • SFI, CSA = some or most but not all • ISO = not applicable
Credibility is the Key • Public confidence • Credibility is as Important to the Industry as to Consumers • Real commitment to sustainable forestry or simple self preservation? “Commitment to sustainable forestry must be real. A media campaign to change attitudes will not work. They [the public] will find out” -Ragnar Friberg, chief forester, Stora Forest and Timber, Sweden
Why Focus on theForest Stewardship Council (FSC)? • International adoption • Rigorous standards and verification • Considered credible by all players • Only system to integrate social concerns • Unique chain of custody
Research Question 2: • What are the motivations for acquiring FSC COC certification? • Hypothesis: • Main motivations included gaining market access, appeasing NGO pressures and satisfying consumer demand.
Motivations • 75% : market access • 35% : environmental concern • 15% : public pressure • 0 % : premiums
Research Question 3: • How are North American COC certified companies affected by their certification? • Hypothesis: • The majority of companies have not yet recuperated costs.
Costs of Certification • Most companies have invested $1001-$100,000 • Costs Attributed to • price of certification • yearly auditing • internal adjustments
Internal Adjustments • 69% : record keeping • 40% : product handling • 16% : none
Costs Recuperated? • 76% of companies have not yet recuperated the costs of their certification. • Why not?
Why are costs not recuperated? • 77 % of companies have less than 20 % certified sales. • 80 % of companies receive no premiums.
Premiums ? • Only 2 companies receive premiums greater than 15%.
Question 4: • What are the dynamics within the FSC supply chain and how do they affect different players in the chain of custody? • Three hypotheses: • Organization size is not a limiting factor in acquiring FSC COC certification • Supply of certified wood products in the supply chain is inadequate • COC processes are mainly driven by buyer organizations that are responding to consumer demand
Hypothesis 1: Organization size is not a limiting factor in acquiring FSC COC certification. • Findings: • only 60% of companies responded • 3 companies have sales under 1 million $ • 76% of companies between 1 and 100 million $ • Discussion: • certification is not a function of size • no apparent disadvantage once certified • supported by recent surveys1 1 Humphries et al. (1998),Carter and Merry (1995)
Hypothesis 2: Supply of certified wood in supply chain is inadequate. • 60% of COC respondents have an inadequate supply • Yet 60% of COC/FM respondents say they have sufficient supply to meet buyer (COC) demand. • How can that be?
Adequate or Inadequate Supply? • General agreement in the literature on a supply deficit1 • How to explain COC/FM response to having enough supply? • COC/FM companies are mostly supplying for themselves, or their local community • Supported by Humphries et al. which found that 77% of respondents sell locally. • What does this mean? Lack of communication between forest management companies and buyers. 1 Humphries et al. (1998), Carter and Merry (1995)
Buyer/Supplier Relations • In fact, certification does not appear to involve changing buyer/supplier relations. • 72% of respondents have the same suppliers and 81% the same buyers as before certification
Hypothesis 3:COC processes are mainly driven by buyer organizations responding to consumer demand • Findings: • Demand > Supply • #1 motivation to certify = market access • Discussion: • Companies are becoming certified in response to buyer demand • In order to retain market access • Cannot say whether or not this is directly a result of consumer demand
Summary of Chain Dynamics • Companies are getting certified in order to retain buyers • Buyers encourage their existing suppliers to become certified, who encourage their suppliers to become certified, who… • So why aren’t forestry companies responding to this demand? • no premiums while largest costs • not aware of demand • lag time to certify forestry operations
The Future of Forest Certification • FSC COC is still in its infancy • Certification is becoming increasingly popular • 75% of our sample received their certification since the year 2000
Renewal of Certification • 82% of the interviewees plan to renew their certification
Certification and the Market • Of the organizations that plan to renew their certification: • 74% do not receive a premium on certified wood products • 51% consider the supply of certified wood products to be inadequate • 67% have not yet recuperated their costs from certification • 74% have certified sales that make up 20% or less of their total sales volume
Solving the Puzzle of Certification • Why are 82% of organizations renewing their certification despite limited market incentives?
Reported Benefits • COC certification provides a number of benefits which are important to the future of forest certification
Why Renew? • Maintain market share and satisfy important buyers • Future importance of certification may outweigh its current impacts • Presence of non-market benefits • Environmental concern
General Conclusion • Currently, FSC COC certification does not seem to be generating the expected market incentives • however, the general attitude among certificate holders remains positive • The voluntary nature of FSC COC certification has inherent strengths and weaknesses • FSC COC is an important, but underutilized, tool • The long term impact of certification on the forestry industry is not yet known, but it is an important first step towards sustainability
Recommendations • The establishment of an FSC supply information network • Future research topics • Investigate ways to expand rigorous certification into pulp and paper sector • Addressing the discrepancy in supply between FM and COC certificate holders • Investigate the impact of box stores, such as Home Depot, on Chain of Custody dynamics
Acknowledgements • Stewart Fast & Sustainable Forest Certification Watch • Professor: Arun Agrawal • Teaching Assistant: Brian Sarwer-Foner • All our colleagues in 401 Thank you
Forest Certification can only Succeed If consumers are conscious of the impacts of their purchase decisions Please choose wisely