1. Professor Frank Greulich University of Washington Nihon U. Sept. 2002 Some thoughts on Currents and Turbulence in American Forest Management

2. American Forest Industry - Responding to Change n Managerial reaction is to pursue strategies that reduce the risks associated with this uncertainty. n The operational environment of the forest industry is changing rapidly. n Managers are now confronting a growing level of uncertainty in their revenue and cost structures.

3. The Rapidly Changing Operational Environment of Forestry

4. The Response of Industrial Forestry

5. First Case How a n Changing Regulatory Environment and n Changing Regional Demographics - - - - - - - - - - - - - Led to n Industrial Timberland Divestiture and a n Timber Supply Hedging Strategy

6. First Case n... (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. n 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..... n 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 Changes in: Regulatory Environment Regional Demographics Divestiture Supply Hedging

7. Second Case How n Changing Regional Demographics - - - - - - - - - - - - - Led to n Forest Land Output Diversification, n Internalization of Externalities, and n Mooted Water Quality Regulations

8. Second Case 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 n Today two-thirds of (International Paper’s) six million acres in the United States is managed profitably for wildlife and recreation. 2 n... 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 n... the steadily increasing demand for recreation convinced company (International Paper) executives that charging fees for recreation made sense. 1 Change in: Regional Demographics Mooted Water Quality Issues Internalization of Externalites Forest Output Diversification

9. Third Case How a n Changing Timber Input and n Free Trade Agreements - - - - - - - - - - - - - Led to n Output Diversification, n Research & Development and n Off-shore Investment

10. Third Case n 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. n 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. n 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. n 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 Change in: Timber Resource Input Product Line Diversification Off-Shore Investment Research & Development

11. Fourth Case How a n Change in the Market Place - - - - - - - - - - - - - Led to an n Industry Association Response

12. Fourth Case n (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. n The Home Depot and B&Q are the world’s 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. B&Q has a goal to sell 100% certified wood products with the FSC ecolabel by Dec. 1999. n 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 AF&PA members who own over 90% of the industrial forestland in the United States. Eco-Link 9(1) Change in: Product Market Place Industry Association Response

13. Managers of American Forest Industry are responding to increased uncertainty n by actions that reduce their expected risk, n by actions that stabilize or reduce risk variability. or

14. Some major impacts on the management of industrial forestry lands n Land management activities are becoming much more restricted: increased timber harvesting costs greater internal & external oversight n Silvicultural systems are being re- examined: “multiple use” and even “ecosystem management” objectives are being followed or considered.