Spokane Journal of Business

Potlatch works to certify lands

Wood-products supplier seeks ISO certification of 1.5 million acres of timber

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Potlatch Corp. is seeking to gain certification of sustainable and environmental forestry standards for its more than 1.5 million acres of timberland in four states and also is working to gain certification of standards for suppliers who provide it with logs from other lands.


The certifications would demonstrate the Spokane-based companys stewardship of its vast holdings, but also is key to the financial viability of the company, says John Olson, vice president of Potlatchs resource-management division.


Our ability to provide raw materials depends on our ability to keep the forest operationally healthy and sustainable, he says. The goal is not simply to achieve certification for market access, but to ensure that we manage in a way thats consistent with our own environmental policies and expectations.


Potlatch spokesman Mike Sullivan says the effort is one way to gain shareholder value for Potlatchs big timberland base.


Its been apparent that the value of our timberlands is not reflected in the value of our stock, Sullivan says. Thats one of the reasons we separated it out from our wood-products operation as its own profit center and one of the reasons why we have proceeded with certification.


The company is working to gain one type of certification from the Geneva, Switzerland-based International Organization for Standardization (ISO), Olson says. The ISO is a worldwide federation that promotes the development of international standards in most technical fields. The standard for setting the parameters of an environmental management system is known as ISO 14001.


Potlatch also will seek certification under a program established by the American Forest and Paper Association, a national trade group, called the Sustainable Forest Initiative (SFI).


The ISO process is much more familiar in association with manufacturers than with natural-resource companies. Telect Inc., the Liberty Lake-based manufacturer of telecommunications equipment, has achieved ISO 9001 certification at its facilities in the U.S. and Poland. Now, natural-resource companies are seeking certification.


Federal Way, Wash.-based Weyer-haeuser Co., which had $16 billion in sales last year and has operations in 17 countries, recently obtained certification of 1.9 million acres of timberland in Washington and Oregon under both ISO 14001 and SFI standards. It also has obtained certification of timberland operations in Georgia and New Zealand, as well as 21 million acres of its Canadian forestry operations.


Boise-based Boise Cascade Corp. began a certification process in 1999, and although it hasnt elected to seek certification under ISO standards, it already has completed third-party audits of its forestry-management practices. Those audits cover the 2.3 million acres of forests the company owns nationally, as well as private and public lands harvested by its contract foresters.


Michael More, spokesman for Boise Cascade, which had sales of $7.8 billion in 2000, says all but a relatively small portion of Boise Cascades operations, primarily in the southern U.S., have already been certified by Pricewater-houseCoopers as being in compliance with SFI standards. The audits also pertained to a second set of management standards established solely by the company with the help of an independent advisory board, he says.


Boise Cascade sought certification under SFI rather than ISO because more than 105 million acres of North American forests have been audited under SFI standards, making them the most prevalent and accepted set of forestry management performance criteria on the continent, More says.


Potlatch hasnt estimated the cost of developing and meeting the standards, since the greatest portion of the work is being performed in house, Olson says. He acknowledges, however, that the cost of the 2-year-old effort is substantial.


The company has persisted in committing resources to the effort despite nearly three straight years of disappointing market performance. It posted only modest gains in 1999 and suffered an uncharacteristic loss in 2000.


This year, even prior to the economic downturn, the company saw prices for lumber and panel goods drop to 10-year lows, and supplies overshoot demand. Housing markets softened and high energy prices reduced the profitability of the companys plants, causing curtailments. Soft market conditions in the fourth quarter also have caused Potlatch to announce curtailments or extended holiday shutdowns at plants in Minnesota and Idaho.


Potlatch reported net loss of $47.7 million, or $1.69 per diluted common share, for the first nine months of this year, compared with a net loss of $17.5 million, or $.61 per share, in the year-earlier period, which included charges for a salaried workforce reduction and a plywood mill closure.


Potlatch, which had $1.8 billion in sales last year, expects to complete both the ISO and SFI certification requirements within the next two years, although its forest properties in each state might be certified separately and at different times, Olson says.


Potlatch will use ISO 14001 certification to establish a framework, for documenting and measuring the com-panys forestry-management performance.


Advocates of the ISO 14000 series standards say they can improve a companys compliance with environmental regulations, aid in the discovery of environmental problems, and improve a companys relationships with its insurers and with the communities in which it is involved.


Like the ISO 9000 quality standards that preceded them, the ISO 14000 standards rely on an independent auditing process and require periodic recertification. Both standards have been most widely adopted by companies with interests in selling goods internationally.


Potlatch already spends several million dollars each year to manage its lands, and now is attempting to redirect those resource-management efforts towards compliance with ISO 14001 and SFI.


If we spend $100,000 over the next year and a half on consultants, thats very small compared to the time spent on this effort internally, Olson says. It requires full involvement by our resource-development people in developing, maintaining, and providing feedback. Thats a significant cost, but not necessarily an added cost as much as a change in business philosophy.


Achieving forestry management certification might offer a near-term advantage over non-certified competitors in the marketplace, but any such advantage probably wouldnt last long, he says.


We expect that the rest of the industry is ratcheting up its (forest-management) standards as well, and that the industry as a whole will be raising the bar, Olson says. We believe we may be ahead in the development of an internal management system to support certification. We believe the time and investment in the development of an internal framework through the ISO standard is necessary and may give us the opportunity to move more quickly than our competition down the road.


The process of setting standards for the management of Potlatchs timberland base is complicated because the company owns forests in three widely scattered statesIdaho, Minnesota, and Arkansasas well as 22,000 acres of hydrid poplar plantations in Oregon.


In Idaho, the companys lands tend to be steeper, which leads to different water and road issues than in other areas, Olson says. In Arkansas, its practices take into account the nesting habitats of birds that dont even exist in Idaho.


Part of the challenge of certifying forestry practices is ensuring that the wood materials a company buys from other private forests and publicly owned forests, which provide Potlatch with more than 50 percent of the materials delivered to its mills, are harvested consistently with certification standards.


What we will be doing, and what SFI standards in 2002 will require, is that loggers and suppliers provide a statement that they will be following certain environmental standards, Olson says.


Well conduct a level of internal audits ourselves. Well identify those suppliers who dont (meet environmental standards) and work with them to get there. If we are unable to do that, well move to a different supplier, he says.


Through the SFI process, the company must demonstrate that its environmental and forestry practices satisfy criteria set up under the initiative, and that it has incorporated those practices into its management plans. Obtaining certification involves meeting a third-party-audited standard of environmental principles, objectives, and performance measures to protect wildlife, plants, soil, and water quality, and to achieve a wide range of other conservation goals.


The preservation and enhancement programs Potlatch might administer under the SFI could be similar to those it already has, Olson says. For example, Potlatch is engaged in monitoring water quality in forest watersheds, adding organic debris to streams to enhance fish habitat, and studying elk and other wildlife to improve their populations.


We recognize there has been a sense that in the past private lands were not managed under sustainable forestry practices, he says. This will allow us to self-police our operations and provide the structure and the mechanism to verify that were meeting a consistent set of forestry-management standards.


Although an association that represents wood-products companies created the SFI standards, environmental experts from outside the industry monitor the SFI program, he says.


Over the last few years theres been a recognition that there is a credibility problem when industry examines its own performance, and now a board representing environmental organizations, industry, and academia has been charged with managing and improving the standards of the industry, Olson says.

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