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ITEM 7b: Role of the forest industry in poverty alleviation

Forest Industries and Poverty Alleviation

Prepared by Gary Bull

1. Introduction

The purpose of this report is to provide background and a framework to continue the dialogue started last year on the role of the forest industries in alleviating poverty. To tackle the complex issues on the role of the forest industry this report:

2. UN Initiatives and Poverty

In essence, the UN Initiatives4 are multifaceted, but there are three main points of reference: UN Millennium Development Goals, UN Conference on Financing for Development in 2002 and the UN Global Compact Initiative 2004. These are briefly summarized below but first it is worth restating the definition of poverty as presented at the ACPWP 44th Session (Item 6c). This definition allows us to consider forest industry initiatives in developed as well as developing countries.

Poverty is:

It is also useful to restate the UN Millennium Development Goals (see Table 1) agreed to by over 160 world leaders who made a commitment to work towards reducing by half the portion of people living in extreme poverty by 20155. Examining these goals we can start to see some of the challenges forest industries will continue to face in addressing the issue of poverty. Industry cannot be expected to address all of these goals, but they can expect to be a partner in the effort. It is pleasantly surprising to see that a number of forest industry companies from various regions of the world are already tackling some of these goals in their operations, activities more fully described in Section 3 of this report.

Table 1 – UN Millennium Development Goals

These eight goals are useful to consider since they identify the critical issues the world community has identified that must be addressed in order to achieve significant improvements in people’s lives: they establish a common framework for measuring progress. They also help explain the context in which forest industries have taken the initiative to develop more specific objectives to address these goals in their operations.

Second, it is also important to consider some of the important sections from the Monterrey Consensus, developed at the UN Conference on Financing for Development in Monterrey Mexico, 18-22 March 2002, where the participants grappled in a more pragmatic way with some of these Millennium goals. Following are some key excerpts that relate to the theme of this paper:

Source: Financing for Development MonterreyConsensus 2002

The themes of trade, investment, corruption, public/private partnerships were central to the Consensus indeed these themes are directly relevant to forest industries.

Third, and very recently, in the newly published United Nations report: Unleashing Entrepreneurships: Making Business Work for the Poor (March 1, 2004) the following general principles were recommended:

Source: UN Global Compact Initiative 2004

The focus of the third initiative is on entrepreneurs, skills and training, public-private partnerships and relations with the poorest of the poor. Taken all three initiatives together we now have a governmental perspective on how the private sector ought to address the issue of poverty.

In addition to government effort, many individual forest industry companies and industry associations have started to develop means of coming to terms to the issue of poverty. Sections 3 and 4 provide a brief review of what selected firms and associations are doing.

3. Case Studies – Forest Industry Companies

This section of the report reviews the experience of forest industry companies in different regions: more specifically Africa, Asia, North America and Europe. By examining what individual companies are doing we can see patterns in the responses of individual forest industry companies, or those closely associated with them. Such patterns will help support the development of an appropriate framework for discussion on the role of forest industries in addressing poverty alleviation.

It should be noted that most of the evidence points towards success, while few companies willingly discuss their failures in addressing poverty. Since few companies have developed a ‘warts and all’ approach in corporate reporting, and few companies have long experience of directly addressing the issue of poverty in a public way, there is a noticeable lack of documentation on failure.

Africa

Congo - tt Timber Group

Who are they?

The tt Timber Group is an independent group of companies operating worldwide with subsidiaries in fourteen countries. The Group is involved in forest management and the processing and trading of forest products. The tt Timber Group has subsidiary companies in 14 countries, including the Republic of Congo, Cameroon, Côte d’Ivoire and Gabon.

What are they doing to address poverty alleviation issues?

In the consumer countries they play a major part in promoting timber usage through transparency, information distribution, and active dialogue with all stakeholders. As a result they have collaboration agreements with at least two large NGOs. Their philosophy is: sustainable solutions depend on constructive dialogue with all serious stakeholders.

They state: ‘We at the tt Timber Group believe working for forests and trading in timber go hand in hand since the future of forests and timber depend on sustainable forest management’.

They attempt to address poverty by protecting ecosystems which they say provide:

The following example in the Congo illustrates their approach. To address poverty they have made serious attempts to improve the livelihood of the local pygmies living in its concessions. They claim that various social development projects undertaken by the company, wildlife management projects and long term sustainable forestry management plans ensure that the local pygmy population will be able to continue to live in the forest that is their traditional home. The government has recognized that the company has made specific efforts for the pygmies in its concessions, which stretch beyond pygmies’ rights as citizens of the Congo as enshrined by Congolese law.

Source: tt Timber Group

South Africa - Global Forest Products Company

Who are they?

Global Forest Products consists of 64 000 hectares of plantation forests and three sawmills, located in Sabie, Graskop and Jessievale, a plywood plant in Sabie, a re-manufacturing plant in Graskop and a specialty products plant also located in Graskop. They employ a total of 1,891 people and are driven by the need to ensure that the demographics of its workforce reflect those of the country and, accordingly, are a socially conscious and equal opportunity employer. They are a significant employer in Mpumalanga Province and as such contribute heavily to the economies of the towns in which it operates.

What are they doing to address poverty alleviation issues?

Recognizing the value of people, a holistic approach to employees is followed. Global Forest Products sponsors medical clinics to serve its employees as well as the local community. Global Forest Products has a dedicated team of nurses who educate the community about current health issues, in particular, how to effectively combat the spread of AIDS.

Staff development is also an integral part of Global Forest Products as it believes a company is only as good as its people. Ongoing "on the job" training coupled with structured technical programmes provide the necessary blend of practice and theory that ensures each individual continually grows and develops. In addition, staff has access to a number of life skill programmes such as literacy classes, English lessons and money management, aimed at personal development.

They also strive to create additional employment opportunities and improve the living standards for the local community. Global Forest Products allows the locals to harvest thatching grass, mushrooms and firewood and provides grazing for the cattle of local farmers. They also sponsor the development of outdoor recreation activities, environmental education initiatives, and make donations to primary schools.

Source: http://www.globalforestproducts.net/

Asia

China – Plantation Timber Products Group Ltd.

Who are they?

Plantation Timber Products Group (PTPG) Limited is jointly owned by Plantation Timber Products Holdings Limited (PTPH 75%) and Sichuan Changjiang Timber Industry Corporation (SCTIC 25%). The PTPH has already developed one MDF factory in Leshan Sichuan, for which debt financing has been provided through International Finance Corporation and it intends to proceed shortly with a second similar project in Hubei province. The PTPH is a private company, whose Chairman and largest shareholder has a well-established furniture manufacturing track record in China.

SCTIC is a state-owned enterprise. PTPG expects to produce approximately 450,000 medium to high quality doors per year based on 3 shifts working over 300 days. The doors will be made from 3mm thick medium density fiberboard; (MDF) which it is intended will be sourced from PTP's new MDF factory in Leshan, which plans to commence production in mid February 2004.

What are they doing to address poverty alleviation issues?

The company has developed a private/public partnership, which is so essential in China given how the property rights are currently assigned, and they have also promoted the development of large outgrower scheme for their fibre supply.

North America

Weyerhaeuser Canada

Who are they?

Weyerhaeuser Company is an international forest industry company with annual sales of $19.9 billion. The company was founded in 1900 and currently employs about 57,000 people in 18 countries. They’ve been ranked in the Fortune 200 since 1956 and are number one in their industry in social responsibility in Fortune magazine's annual corporate reputation survey for seven years.

Weyerhaeuser made its first investment in Canada in 1964. Today, Weyerhaeuser Canada holds renewable, long-term licenses on 13.2 million hectares of forestlands in five provinces.

What are they doing to address poverty alleviation issues?

In Canada, one of the poorest groups in their society is the indigenous people. To address the poverty issue, Weyerhaeuser Canada has been actively developing partnerships with them. Not only have they developed policies and principles for this business relationship, they have also developed a procedure for measuring progress towards their objective of building relationships.

In 2003, Weyerhaeuser Canada developed: “A policy for building relationships: Canada’s indigenous8 people and Weyerhaeuser”. The purpose of the policy is:

Perhaps the two most important relevant components to the discussion by the ACPWP are the set of principles and the procedure developed to measure progress. The principles which Weyerhaeuser Canada committed to in relationship building are:

To maintain a focus on the company’s progress toward these long-term objectives, the Weyerhaeuser Canadian Corporate Leadership Team periodically reviews trends and progress using key performance measures as seen in Table 2.

Ted Kimoto, General Manager of Weyerhaeuser’s indigenous protocol with the Nuu-chah-nulth on Vancouver Island, is actively negotiating with at least 50 indigenous groups. He describes the situation as follows:

As a “responsible steward of the land,” Weyerhaeuser is working towards building mutual business relationships with indigenous groups, including employment opportunities, business alliances, education, training, skill development, and community involvement. He said that industry’s role is to provide leadership and that industry has a responsibility to earn the respect of other stakeholders, to value quality over quantity, and to show respect for stakeholders, the environment, and social values. Source: Presentation-Ted Kimoto

Table 2. Key-performance measures.

Focus Area

Key Measure

Other Measures

Employment – Direct

New hires – total # and # indigenous workforce - %

Application #

indigenous Company demographics - %

indigenous salaried non-exempt - %

indigenous hourly - %

Employment - Indirect

# of indigenous businesses providing goods and services

Community demographics

Business Alliances

# of formal alliances with indigenous communities

% indigenous involved in providing good and services

Education and Training External

# scholarships, bursaries and grants to indigenous peoples

# of education support events involved in.

Education and Training Internal

% employees received culture and awareness training and education

% employees received diversity training.

Community Involvement

$ and other contributions to indigenous communities

indigenous leaders on invitation lists for community participation

Source: WeyerhaeuserCanadaPolicy2003

Mead Westvaco

Who are they?

Mead Westvaco was created in January 2002, a powerful combination of two established companies each with a rich history. As Mead Westvaco, they have created new products, expanded their markets and continue to strengthen their customer relationships. From strategic locations in 29 countries, they serve customers in nearly 100 countries in industries such as forest products, automotive, beverage, consumer products, healthcare, media and entertainment, and publishing.

What are they doing with respect to poverty alleviation issues?

Mead Westvaco has established Community Advisory Panels (CAPs) in many locations to foster open dialogue with the community. CAPs provide a forum where community members can learn more about Mead Westvaco and where they can learn about the important goals of the community. They believe that their responsibilities as a company include support of the communities in which they operate and support for organizations, programmes and projects that meet important needs of society consistent with the company's business goals and objectives.

Mead Westvaco has established the Foundation to support its long-term commitment to invest in community involvement and encourage employee volunteerism. The Foundation's primary focus is to address important community needs and improve the quality of life in communities where Mead Westvaco operates. Specific areas of emphasis include health, human services, education, stewardship and arts and culture.

Source: meadwestvaco.com. policy on community

Hispano Mexicana de Puertas y Molduras

Who are they?

In the year 2000, a Mexican ejido decided to establish an agreement with Spanish entrepreneurs and created a company, Hispano Mexicana de Puertas y Molduras S.A. de C.V., to produce wooden doors. The company is about to start producing some 125,000 units per year. The second phase of the project will be furniture manufacturing.

What are they doing with respect to poverty alleviation issues?

The business agreement has the potential to help the local ejido. Already there are these benefits:

Source: Villanueva, 2002 cited in Forest Trends draft report 2004.

Europe

Stora Enso

Who are they?

Stora Enso is an integrated paper, packaging and forest industry company producing publication and fine papers, packaging boards and wood products, areas in which the Group is a global market leader. Stora Enso sales totalled EUR 12.2 billion in 2003. The Group has some 43,000 employees in more than 40 countries on five continents and an annual production capacity of 15.7 million tonnes of paper and board and 7.4 million cubic metres of sawn wood products, including 2.8 million cubic metres of value-added products.

What do they do with respect to poverty alleviation issues?

Stora Enso's principles for Corporate Social Responsibility address concrete questions related to human rights, business practices, communications and community involvement. Equality, safety, working conditions and child labour are examples of topics covered by the principles. The principles focus on the social and socio-economic aspects of sustainability, because the Group already has a strong record on financial performance and environmental management systems, the other two elements of sustainability.

The principles are based on internationally accepted statements, such as the United Nations Universal Declaration of Human Rights and the core ILO conventions. (Stora Enso has also decided to support the United Nation's Global Compact and its initiatives).

The main principles identified are outlined below:

• Business Practice

• Communication

• Community Involvement

• Reduction in Workforce

• Principles regarding Human Rights

• Integrating the Corporate Social Responsibility Principles

• Stakeholders

Source: http://www.storaenso.com/CDAvgn/main/0,,1_-4302-2420-,00.html

4. Case Studies - Industry Associations

This section attempts to show how industry associations have been tackling the issue of poverty, at least indirectly. While it is clear that their policies are still in the early stages of development, it does indicate that consensus among their membership can be reached on important social issues.

Forest Products Association of Canada

The Forest Products Association of Canada has already developed a set of guiding principles for forest land management in Canada. Table 3 summarizes a selection of the relevant principles.

As described in Section 6, all goods - forest products - are produced by combining three principal factors of production: land, labour and capital. In Table 3 we have matched the guiding principle with the factors of production and it is fairly obvious that, thus far, the factors addressed are land and labour, not capital (see Table 4, Section 6 for more details). So one immediate challenge for the industry associations is: Can they develop additional principles to address the capital issues using lessons learned in other industrial sectors principles? The short answer is: yes.

Table 3: Selected guiding principles for the Forest Products Association of Canada

Principles

Framework
(see Table 4)

• Cooperate with indigenous communities to engage their participation in forest management activities.

    Land, labour

• Provide for constructive public input into the forest management planning process, and respect public and community concerns and suggestions in the development of operations plans.

Land, labour

• Ensure that management plans are implemented by competent employees who have undergone appropriate education and training for carrying out their duties in a professional and responsible manner.

Labour

• Improve public knowledge and awareness of forest management and practices through information programmes.

Labour

• Ensure that the health and safety of employees and the public are not compromised by any forest practice or operation

Labour

Source: Forest Products Association of Canada

FPAC_ guiding_principles_for_forest_land_management_in_canada.pdf

For example, the British Columbia and Yukon mining sector in January, 2004 has just developed principles to address the issue of capital (finance and business) with respect to the poorest segment of the Canadian society - indigenous people. In the set of 10 principles they have developed, three relate to capital (BC and Yukon Chamber of Mines 2004):

• Acknowledge there’s a shortage of capital to involve indigenous and other people9 in co-operative ventures.

• Encourage the enhancement of indigenous and other peoples capacity to develop training, employment and business opportunities in the resource sector.

• Support indigenous and other peoples’ aspirations in securing economic development.

In point of fact, these principles evolved largely from the main author’s experience in the British Columbian forest industry and its attempts to find a meaningful business relationship with indigenous people.

International Council of Forest and Paper Associations

1 The International Council of Forest and Paper Associations have adopted the following statements with respect to their social pillar:

According to the World Bank, one billion of the world’s poorest people depend on forest resources for their livelihoods. Sustainable management of the forest can perpetuate a way of life and maintain local economies in thousands of communities around the world. Furthermore, forest and paper companies are often located in rural a community, which contributes to reducing migration to urban areas by providing jobs locally. Essentially, it means that forest and paper products are at the heart of rural living and contribute to employment, financial support, training and education, commitment to health and safety, ongoing investments in operations, and stakeholder involvement. Their specific contributions are outlined below.

Employment

The forest and paper industry provides employment for tradespeople and professionals – in the forest, in the mills, and in the marketplace – as well as for those working in businesses that sell goods and services to the industry and in converting operations.

Financial Support

Private companies play a major role in economic and social development, especially in rural areas where manufacturing facilities require high investments in infrastructure and social welfare. In addition to paying salaries and benefits to employees, companies pay taxes and fees to governments.

Especially in developing countries, private companies often contribute to the maintenance of hospitals, schools and training networks, sanitation structures, roads for use by the industry and the community, and sometimes even airport and port facilities. They also contribute to health care initiatives including drug and alcohol counselling, childcare, disability services, and health education and promotion. Other counseling initiatives have included legal, family, housing, employment and career, homework support, and financial counselling.

Training and Education

Individual companies support local communities in endless ways, from sponsoring sports teams and youth clubs, to building and supporting local schools as well as other community social services. Workshops have been offered on personal development and job skills, parenting, and employment training. Many companies around the world support literacy programmes for children.

Commitment to Health and Safety

The industry is working to preserve the physical, mental and social well-being of its employees and their families and is determined to eliminate accidents and risks in the workplace.

Corporate Social Responsibility

In a time of intensified globalisation, growth must develop alongside responsible business conduct. Several companies located in industrialised countries have developed principles and policies for Corporate Social Responsibility as well as the necessary monitoring systems. The UN’s Global Compact Initiative and its nine principles of corporate social responsibility launched in 2000 aims to create global awareness on the issue.

Ongoing Investment in Sustainable Operations

Over the last decade significant investments have been made to improve forest management and the manufacturing processes in forest products mills. This will allow the industry to continue it’s financial, and therefore, social and environmental, support of communities in the long term.

Dialogue with Stakeholders

The international forest and paper industry promotes an open dialogue with the public. It seeks opinions on environmental priorities, especially from local communities and from its employees. It is publicly stating its own environmental objectives, activities and performance. In some countries the industry works with the indigenous communities on projects such as training and education, joint business ventures and contracting to indigenous businesses.

Source: International Council of Forest and Paper Associations

These contributions of forest industry provide some critical guidance on what should be considered in forest industry’s role in dealing with poverty.

International Council on Mining and Metals

The members of International Council on Mining & Metals (ICMM), or as companies that have otherwise agreed to take on the same performance obligations as ICMM members, have agreed on the following principles:


ICMM corporate membership includes a commitment to measure corporate performance against these principles.

Source: http://www.icmm.com/html/icmm_principles.php

Other key principles the mining sector mentions related to poverty were:

They stated: ‘We believe such moves [author’s note: adopting principles] would enhance the potential of mining to alleviate global poverty.’

Source: http://www.icmm.com/html/icmm_principles.php

The following Section now attempts to provide a synthesis of the main ideas extracted from the UN initiatives, the individual forest industry companies and the industry associations.

5. Analysis

The forest products industry largely produces goods from the forest and these goods are produced with an array of inputs. The industry must pay close attention to introductory economics which explains that commodity production is largely a function of land, labour and capital and that to increase efficiency it is essential to constantly improve on the uses of these input factors of production to produce a more efficient output – forest products. The industry should then be able to appreciate that to deal with aspects of poverty it must identify ways to change how it uses the factors of production; for example, industry in more recent times has worked to include education and community concerns in dealing with ‘labour’ since health communities and a well trained workforce often leads to greater efficiencies in production.

Table 4 illustrates how industry has addressed land, labour and capital components of production in the past and the present. The ideas presented are based primarily on three sources: a) the three United Nations initiatives described in section 2, b) the randomly selected policy, principles and programmes developed by individual forest industry processing companies and c) policy, principles and programmes of the forest products, or related, associations described in sections 3 and 4.

Perhaps of greatest significance in Table 4 are the impediments related to capital (finance). While the experience of several forest products companies and associations demonstrate a clear change in direction with respect to land and labour, it seems the forest industry has still more to consider with respect to capital if it wants to be an effective agent of change. One could argue that quite often the poor have little or no access to capital or are undercapitalized. These are serious constraints if there is a desire to follow the principles laid down in the UN Global Compact Initiative 2004 report ‘Unleashing Entrepreneurship: Making Business Work for the Poor.’

In summary, Table 4 provides a framework to examine the following key questions:

• Capital: Does the forest industry need to consider how it can facilitate making more capital available to the poor?

• Land, Labour: Has the forest industry response been sufficient with respect to land and labour dimensions of poverty, and if not, what else can it do?

• Principles: Should the forest industry associations develop a set of common principles consistent the themes identified by their individual members, industry associations and the United Nations?

• Objective and Targets: If principles are developed, should the industry develop the appropriate tools to measure their objectives and targets with respect to poverty alleviation?

Table 4 – Framework for examining industry’s role in poverty alleviation

.Factors of Production

Classic industrial view for operations and management

New industrial views

(i.e. practical means of including poverty alleviation highlighted in this report)

q Land

• Own land or very exclusive rights

    • Outgrower schemes

    • Shared ownership (co-management)

    • Increased access to resources for business/entrepreneurial opportunities

    • Ensure sustainable forest management

q Labour

• Labour distant from management

• Labour under direct management control in all phases of logging.

• Aggregate labour productivity; less emphasis on the individual worker productivity; education, training and health a government issue.

• Community development a government issue

    • Labour can be active participants and/or shareholders

    • Labour outsourcing

    • More emphasis on the education, training and health to improve individual labour productivity

    • Public/private partnership

    • Business partnerships

    • Community relations officers

q Capital (finance)

• Capital markets or private capital

    • Acknowledge the shortage of capital for marginalized groups (including indigenous people)

    • Partnerships can allow increased access to capital for poor people

    • Access to capital is now a global issue; requires global investment criteria and reduction in trade barriers

6. Conclusions

Clearly there are a number of initiatives in the United Nations, individual forest industry companies and industry associations that relate the forest industry to poverty alleviation.

The industry has to decide if it wants a set of common principle directly related to poverty, and to make them more meaningful, it has to decide if it wants to design measurable objectives and targets for indicating performance.

3 South America will be prepared and presented by BRACELPA

4 In addition to UN initiatives, there was a World Bank sponsored Forest Investment Forum, October 22-23, 2003, held in Washington, DC. The convening of the Forum was a step toward implementing the World Bank's October 2002 Forest Strategy, where one of the three key goals was poverty reduction.

5 One of the pillars of the World Bank’s new forest strategy, which will be implemented through partnerships with civil society organizations, governments, and the private sector, is harnessing the potential of forests to reduce poverty.

Amongst the poorest groups in society are indigenous peoples. They have historically been the most disadvantaged and marginalized populations in many parts of the world. There are over 200 million indigenous peoples worldwide, living in more than seventy countries (Source: The World Bank & Indigenous Peoples. 2002. Fact Sheet.)

6 Business ecosystems bypass weak regulatory environments by creating private capacity for regulation and enforcement within the network.

7 Indigenous people are also referred to as aboriginal and First Nations people in other parts of world. For the sake of consistency they are referred to as indigenous people in this document.

8 In the company text they are referred to as Aboriginals.

9 As mentioned, the term in the original text was ‘First Nations’ but this has been replaced with indigenous and other peoples to make it relevant to an international audience.

10 The principles in bolded text and the subsections linked directly poverty issues

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