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Forest certification in the Canadian value-added wood products manufacturing sector Jayasinghe, Piyangi 2005

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FOREST CERTIFICATION IN THE CANADIAN VALUE-ADDED WOOD PRODUCTS MANUFACTURING SECTOR by PIYANGI JAYASINGHE Bachelor of Science in Bioscience, University of Kelaniya, Kelaniya, Sri Lanka, 1995 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES THE UNIVERSITY OF BRITISH COLUMBIA June 2005 ©Piyangi Jayasinghe ABSTRACT Third party forest certification has been recognized as a policy mechanism for achieving sustainable forest management (SFM), and has been in practice for more than a decade. In Canada, forest certification is reported to be gaining momentum, influencing both forest management practices and the forest products industry. However, little information is available on how forest certification affects the forest products industry. Questions like "what are forest products manufacturers' attitudes towards forest certification" are rarely investigated, despite their importance to the progress of forest certification. The scarcity of research is particularly evident in the Canadian value-added wood products manufacturing sector. A Canada-wide mail survey was conducted during April and July of 2004 among value-added wood products manufacturers to address this information gap in the industry. One thousand surveys were sent out. The response rate was 13.14%, with no statistically significant response bias. According to the results of the survey, 64.8% of Canadian value-added manufacturers are not interested in forest certification. Over seventeen percent of the sector (17.6%) is currently involved with forest certification, while another 17.6% is interested in becoming involved within next five years. Two results were highlighted with regard to the majority's lack of interest towards adopting forest certification: their low level of knowledge on forest certification and a perceived lack of consumer demand for certified forest products. In general, all respondents cared about sustainable forest management and the concept of forest certification, but were doubtful about forest certification's ability to provide marketing and production-related benefits. A logistic regression and a cluster analysis were conducted to distinguish between firms that are interested and not interested in forest certification. Logistic regression highlighted two points: firms that are not interested in forest certification had a significantly lower level of knowledge of chain of custody certification (chain of custody certification certifies the use of raw materials from certified forests in forest products); and firms that are interested in forest certification had a stronger belief that certification would help to differentiate them from their competition. Cluster analysis grouped firms that are interested in forest certification into two clusters: one cluster had a very positive attitude towards forest certification and its ability to provide benefits, while the other indicated that they would "wait and see" how consumer markets for certified forest products develop. i i T A B L E OF CONTENTS A B S T R A C T II T A B L E O F C O N T E N T S -HI L I S T O F T A B L E S VI L I S T O F F I G U R E S VII A C K N O W L E D G E M E N T S VIII 1. I N T R O D U C T I O N 1 2. B A C K G R O U N D . . . 2.1 E V O L U T I O N O F F O R E S T C E R T I F I C A T I O N : 2.1.1 A New Mechanism in the Forest Sector 2.1.2 Origins of Forest Certification • 2 . 2 F O R E S T C E R T I F I C A T I O N 2.2.1 The Concept and the Process of Forest Certification 2.2.1.1 Chain of Custody Certification (COC) 2.2.1.2 Wood Products Manufacturer Support of/for Forest Certification 2.2.2 Market Benefits and Issues of Forest Certification 2.2.3 Certification Schemes 2.2.4 Market Credibility 2 . 3 . M A R K E T I M P A C T S - E V O L V I N G L E S S O N S , E X P E R I E N C E S A N D T R E N D S 2.3.1. Adoption 2.3.2. Are the Benefits a Reality? 2.3.3 Challenges 2.3.4. Recent Developments - LEED 2 . 4 . C A N A D I A N V A L U E - A D D E D W O O D P R O D U C T S M A N U F A C T U R E R S A N D F O R E S T C E R T I F I C A T I O N 1 2.4.1 Sector Profile 2.4.2 Forest Certification in the Value-Added Sector 2 . 5 P R O B L E M S T A T E M E N T A N D O B J E C T I V E S 3. M E T H O D O L O G Y . ! 3.1 E X P L O R A T O R Y P H A S E 3 . 2 D E S C R I P T I V E P H A S E 3.2.1 Data Collection, Definition of the Population and Sampling Methods. 3.2.2 Mail Survey Design and Implementation 25 33 ETHICAL CONSIDERATIONS 26 3.4 DATA ANALYSES 26 4. RESULTS 31 4.1 MAIL SURVEY RESPONSE RATE 32 4.1.1 Non-Response Bias 32 4.2 RESPONDENTS' LEVELS OF INVOLVEMENT WITH FOREST CERTIFICATION 33 4.3 RESPONDENT PROFILES 34 4.3.1 Location 34 4.3.2 Raw Materials Used. 35 4.3.3 Types of Products Manufactured 36 4.3.4 Destination of Finished Products (Domestic vs. International) 37 4.3.5 Sales Revenues for the Past Year (2002-2003) 38 4.3.6 Number of Employees per Company 39 4.3.7 Important Issues to Responding Companies .' 40 4.3.8 Respondents' Level of Understanding of Basic Certification Concepts 42 4.3.9 Respondents' Level of Trust of Various Entities that Make Environmental Claims 43 4.3.10 Respondents' Attitudes Towards Forest Certification 44 4.4 ATTITUDES OF RESPONDENTS WHO WERE NOT INTERESTED IN FOREST CERTIFICATION.... 45 4.5 ATTITUDES OF COMPANIES CURRENTLY INVOLVED IN FOREST CERTIFICATION AND COMPANIES THAT INTEND TO USE CERTIFICATION WITHIN FIVE YEARS 46 4. 5.1 Respondent's Reasons for Seeking Forest Certification 46 4.5.2 Respondents' Involvement with Certification Schemes 48 4.5.3 Respondents' Opinions on Costs / Challenges of Forest Certification 48 4.5.4 Respondents' Attitudes Towards Benefits of Forest Certification 49 4.5.5 Respondents' Information on Purchasing Certified Raw Materials and Marketing Finished Certified Products ; 51 4.5.5.1 Purchasing Behaviour for Certified Raw Materials 51 4.5.5.2 Marketing Certified Finished Wood Products 53 4.5.6 Information on Companies Currently Producing Certified Value-Added Products 56 4.6 CLUSTER ANALYSIS OF RESPONDENTS BASED ON THEIR ATTITUDES TOWARDS CERTIFICATION 57 4.6.1 One-Way ANOVA Analysis on Three Clusters 58 4.6.2 Z-Tests Comparing Proportions of Companies that are Not-Interested in Forest Certification 60 4.6 3 Profiling of Clusters 60 4.7 LOGISTIC REGRESSION (LR) OF COMPANIES BASED ON INTEREST IN FOREST CERTIFICATION 62 4.7.1. Models' Significance in Predicting Outcome Variable 63 iv 5. DISCUSSION 65 5.1 ADOPTION OF FOREST CERTIFICATION BY VALUE-ADDED MANUFACTURERS 65 5.1.1 Current Status and Possible Factors affecting the Adoption 65 5.1.2. Types of Certification Schemes 67 5.2 LEVEL OF KNOWLEDGE AND AWARENESS 67 5.3. MANUFACTURERS' ATTITUDES 68 5.3.1. General..: 68 5.3.2 Benefits •. 69 5.3.3 Costs and Challenges 69 5.3.4. Suggestions for Improving Acceptance of Forest Certification 70 5.4 LIMITATIONS AND FUTURE RESEARCH 71. 6. C O N C L U S I O N S 72 P R E F E R E N C E S 74 APPENDIX I: MAIL QUESTIONNAIRE FOR COMPANIES 81 APPENDIX II: COVER LETTERS 86 APPENDIX III: ANSWERS TO THE OPEN-ENDED QUESTIONS 91 V LIST OF TABLES Table 2.1: Review of Selected Forest Certification/Verification Schemes 12 Table 2.2: Area Certified in North America under the Main Certification Schemes 13 Table 2.3: General Categories of Value-Added Products 20 Table 3.1: Sample Selection from the Sample Frame by Region 25 Table 4.1: Comparison of Proportions and Means between Early and Late Respondents 33 Table 4.2: Respondents' Level of Involvement with Certification 34 Table 4.3: Location of Respondent Companies Based on Levels of Involvement with Certification 35 Table 4.4: Raw Material Used by Respondents by Value 36 Table 4.5: Types of Products Produced by Respondent Companies 36 Table 4.6: Sales Values of Finished Products in Domestic and International Markets 37 Table 4.7: Sales Values of Finished Products in Domestic and International Markets Based on Level of Involvement with Forest Certification 38 Table 4.8: Number of Employees based on Respondents' Level of Involvement with Forest Certification 40 Table 4.9: Percentage of Time that Each Issue Affecting Business Success was Ranked 1st, 2nd and 3rd 41 Table 4.10: Respondents' Level of Understanding of Basic Certification Concepts 42 Table 4.11: Percentage Value an Entity was Ranked 1st, 2nd, 3rd, 5 lh and 6th by Respondents 44 Table 4.12: Percentage of Time that Each Reason for Seeking Forest Certification was Ranked 1st, 2nd, 3rd 47 Table 4.13: Origin of Raw Materials Reported by Companies that are Certified or Interested in Certification 52 Table 4.14: Sources of Certified Raw Materials Reported by Companies that were Certified or Interested in Becoming Certified 52 Table 4.15: Mean Certified Raw Materials Purchasing Cost as a Percentage of Total Costs 52 Table 4.16: Mean Price Premiums Paid for Certified Raw Materials 52 Table 4.17: Level of Involvement in Purchasing Certified Raw Materials 52 Table 4.18: Proportion of Respondents Selling Labeled Certified Products 54 Table 4.19: Proportion of Sales Going to Certified and Non-certified Buyers 55 Table 4.20: Types of Information Materials Used by Respondents to Inform Customers about Certification 55 Table 4.21: Types of Customers for Certified Finished Products 55 Table 4.22: Sources of Information on Forest Certification for Value-Added Manufacturers 56 Table 4.23: Areas Where There is a Lack of Information Regarding Certification According to Respondents 56 Table 4.24: Experiences with Producing Certified Wood Products 56 Table 4.25: Experiences with Producing Certified Wood Products 57 Table 4.26: Final Cluster Centers 57 Table 4.27: Distances between Final Cluster Centers • 58 Table 4.28: Test of Homogeneity of Variances 59 Table 4.29: One-way ANOVA for Variables 59 Table 4.30: Z-test comparing Proportions of Companies that are Not Interested in Certification in Three Clusters 60 Table 4.31: Characteristics of Clusters 61 Table 4.32: Dependent Variable Encoding 62 Table 4.33: Variables Significant in Predicting Group Membership 62 Table 4.34: Model Summary 63 Table 4.35: Omnibus Tests of Model Coefficients 63 Table 4.36: Classification Table When Two Variables are Included in the Model 64 LIST OF FIGURES Figure 2.1: Relationship between Standards and Forest Certification / Product Labels 7 Figure 2.2: Simplified Supply Chain Diagram for Forest Products..... : 7 Figure 2.3. A Possible Chain of Custody Certification Procedure 8 Figure 4.1: Location of Respondents 35 Figure 4.2: Proportion of Sales for the 5 Most Common Product Lines Produced by Respondent Companies 37 Figure 4.3: Sales Revenues of Respondents in the year 2002 - 2003 ..: 38 Figure 4.4: Respondents' Sales Revenues Based on Level of Involvement with Certification 39 Figure 4.5: Number of Employees in Respondents' Companies 40 Figure 4.6: Respondents' Stated Importance Given to Various Issues Affecting Business Success of a Company .41 Figure 4.7: Level of Understanding of Basic Concepts of Forest Certification 43 Figure 4.8: Respondents' Trust for Various Entities that Make Environmental Claims 44 Figure 4.9: Respondents' Attitudes Towards Forest Certification 45 Figure 4.10: Attitudes of Respondent Companies' that were not Interested in Certification 46 Figure 4.11: Reasons for Respondent Companies to Seek Certification 47 Figure 4.12: Respondents Involvement with Forest Certification Schemes 48 Figure 4.13: Respondents' Opinions on the Costs/Challenges of Forest Certification 49 Figure 4.14: Respondents' Attitudes towards Potential Benefits of Certification 50 Figure 4.15: Current and Expected Challenges of Purchasing Certified Wood Supplies 53 Figure 4.16: Markets for Certified Finished Products 55 ACKNOWLEDGEMENTS I would like to express my very sincere gratitude to all those who have assisted me over the course of completing this dissertation at the University of British Columbia. First, my heartfelt gratitude goes to my supervisor, Dr. Robert Kozak, for his gentle guidance, support, generosity of time and confidence in me. Similarly, to my co-supervisor Dr. Gary Bull for his guidance, advice and all the time he devoted to helping me succeed. , To Professor David Cohen for being part of my committee and providing insightful comments to my thesis. To Drs. Thomas Maness and Nicholas Coops for participating in my thesis defense. To all faculty and staff at the Faculty of Forestry for being so supportive and friendly, making this faculty a great environment for studying. To all my friends both at the Faculty of Forestry and Koerner's pub, whose emotional support was indispensable. To my family for their endless love and support. Last, but certainly not least, I gratefully acknowledge the financial support of the Sustainable Forest Management Network. viii 1. INTRODUCTION Third party certification systems, a new approach for the management of environmental and social impacts of industry, are making inroads into the traditional policy arena and influencing business strategies. During the last few decades, they have gained popularity in many fields such as forestry, tourism, fisheries and coffee, changing the way in which firms respond to their externalities. By participating in such certification systems, firms are moving from just following traditional rules and regulations to proactive and voluntary actions. Today, in the forest industry, third party certification systems (forest certification) are widely used. Forest certification is meant to encourage forestland managers and forest products producers to engage in good forest management practices driven by market incentives. Market incentives are derived from environmentally conscious consumers showing their preferences for forest products that are certified as coming from sustainably managed forests. Forest managers and producers may use certification as a marketing tool to inform consumers about their good forest management practices in hopes of gaining advantages in the marketplace. For consumers, it may be considered a way of holding direct and indirect forest exploiters accountable for their actions (Bass and Simula 1999, Cashore 2002). Although forest certification is a recent phenomenon, it has influenced both forestland management and forest products markets considerably. A key indicator in forestland management is the rapid growth of area certified in the world. From the year 2000 to mid 2003, the area of certified forests has doubled to about 150 million hectares (World Resource Institute 2005 and UNECE/FAO 2004). Non-governmental organizations (NGOs), governments and industry partnerships have developed approximately 40 forest certification schemes around the world since 2002 (Leslie 2004). In forest products markets, many large forest products buyers, such as retailers, have changed their business strategies to include purchasing certified products (IBM 2003). Buyers groups have been established in many nations, influencing the market size for and nature of certified products. Consumer segments, which may favour certified forest products over non-certified forest products (Ozanne and Vlosky 1997, Forsyth et al. 1999, Veisten 2002), have emerged in many different countries. The main objective of this research is to study the status of forest certification in the Canadian value-added wood products manufacturing sector. The value-added wood products sector is one of the leading manufacturing sectors in Canada, with a growing economic importance to the forest products industry (Wood Manufacturing Council 2002). By examining this sector, I expect to gain information that informs both forest certification and the wood products industry in Canada. 1 The specific objectives of this study are: 1. To evaluate the current level of adoption of forest certification by Canadian value-added manufacturers; 2. To assess the knowledge and awareness of forest certification by value-added manufacturers; and, 3. To assess value-added manufacturers' attitudes towards forest certification. The context in which forest certification systems have developed is important in order to understand the status, objectives and impacts of forest certification systems today. Chapter 2 of this dissertation provides the historical background of forest certification, explains its methodology, and describes how and why wood products manufacturers choose to participate in certification initiatives. Chapter 2 also introduces the Canadian value-added sector, focusing on the characteristics that might affect manufacturers' acceptance or rejection of forest certification. In order to achieve the objectives of the study, I conducted a Canada-wide mail survey in 2004. In chapter 3, I explain the survey methodology and data analyses methods and present the results in the chapter 4. Chapter 5 provides a forum for discussing the results of the study and any research limitations present. In chapter 6,1 offer some concluding remarks based on the results. 2. BACKGROUND 2.1 EVOLUTION OF FOREST CERTIFICATION 2.1.1 A New Mechanism in the Forest Sector The last two decades in the forest sector have witnessed a move away from command-and-control legislation towards voluntary, non-governmental regulations (Bernstein 2001, Ronit 2001, Bartley 2003, Cashore et al. 2005). Historically, state rules and regulations bound industry to a certain standard of performance in an effort to control some of the environmental and social externalities of production. While state laws are still preferred by some policy makers (mainly governments) (Cashore et al. 2005), during the last twenty years, economic policy makers, NGOs and some government actors have experimented with alternative approaches to managing the social and environmental impacts of industrial practices (Takahashi 1999, Stavins 2002, Cashore et al. 2005). These alternatives can be separated into three groups: 1) inter-govemmental approaches (such as inter-govemmental treaties); 2) market-based incentives (such as taxes and tradable pollution charges); and 3) market-driven, self-regulatory (voluntary) non-governmental mechanisms that are designed to address public matters through transnational social movements (Cashore 2002). An example for this latter category includes third party certification systems. , 2 Today, third party certification systems receive considerable attention as a mechanism to address sustainable forest management issues, something that many other mechanisms have failed to achieve with any significant success (Ronit 2001, Cashore 2005). Several characteristics of third-party certification systems differentiate them from alternative policy approaches that promote sustainable forest management (Bass & Simula 1999, Cashore 2002, Prakash 2002). These include: • Government involvement - There is no government involvement to force compliance (Cashore 2002); rather, they are controlled by non-governmental and/or business hybrids called certification associations (Barfley 2003). • Firms' participation - Firms' participation is voluntary, and based on market incentives or disincentives created along the supply chain (Cashore 2002)'. • Compliance to rules - Compliance with "performance-based" standards must be verified by a third party (Cashore 2002). Performance-based standards are measurable and, therefore, firms can make verifiable claims, which can be rewarded by consumers as opposed to system-based standards that are difficult to quantify (Prakash 2002). Third party verification and stakeholder acceptance are important determinants of credibility for certification schemes. • Stakeholder participation - There has to be a broad range of stakeholder participation in forest certification (market actors, consumers, NGOs, academics). This makes third party certification schemes legitimate and influential as policy tools (Bass & Simula 1999, Cashore 2002). 2.1.2 Origins of Forest Certification In the rapid development of voluntary third-party forest certification systems, four trends are apparent: internationalization; free-market environmentalism; government support to alternative (non-governmental) tools to address tropical deforestation; and, the concept of "sustainable development" and the failure of inter-govemmental actions to achieve it (Menon and Menon 1997, Bernstein 2001, Ronit 2001, Bartley 2003, Cashore et al. 2004). Each is discussed in turn. 1) Internationalization Cashore et al. (2004, 2005) suggest that, while globalization might lower the bar of environmental standards (a phenomenon commonly discussed as the "race to the bottom"), an increase in information sharing and international communication due to globalization may also create a situation where increased scrutiny by the global community protects domestic public resources. Bernstein (2001) and Cashore refer to this phenomenon as internationalization. Market-based boycott campaigns 1 Under special circumstances, firms may be forced to participate in forest certification; for example, in the case of buyers groups or if it is required by government laws (as in New Brunswick, Canada). 3 organized by environmental non-governmental organizations (ENGOs) in the 1980s are a case in point. ENGOs advertised that certain retailers (such as Home Depot in the USA and B&Q in the UK) were contributing to tropical deforestation by purchasing wood harvested by unsustainable practices (Cashore 2005). In responding to these public pressures, some companies started to claim their production processes as environmentally friendly, but environmental groups soon began to question the credibility of these claims (Bartley 2003). At the same time, boycott campaigns were criticized for actually increasing deforestation in tropical timber exporting countries by hurting forest-dependant populations and encouraging agriculture on forestlands in developing countries (Brockman 1996, Bartley 2002). Even though boycott campaigns ultimately failed to stop tropical deforestation, market-based social pressures influenced companies to change their policies towards protecting public resources (Bartley 2003). By the early 1990s, demand for environmentally and socially conscious business policies abounded (Bartley 2003). 2) Free-Market Environmentalism A simultaneous development that lessened the power of traditional control systems was the emergence of "liberal environmentalism" (Bernstein 2001) or "free market environmentalism" (Sale 1993) during the mid-1980s. According to Bernstein (2001), liberal environmentalism is a system of governance that "accepts liberalization of trade and finance as consistent with, and even necessary for, international environmental protection and a system that accepts and promotes market-based methods over traditional government control systems". Liberal environmental ideas coupled with internationalization led NGOs away from traditional tools of governance towards market-based initiatives (Cashore at al. 2004) as well as created a context for environmental marketing2 (Menon and Menon 1997). As a result, cooperative efforts between governments, environmentalists, and businesses emerged; this stands in stark contrast to past policy coalitions in which business interests opposed environmental interests (Menon and Menon 1997, Bartley 2003). 3) Government Support of Alternative Tools to Address Tropical Deforestation Bartley (2003) states that in the new era of liberal institutional arrangements, there are limitations to government actions that address tropical deforestation. Therefore, governments began to look for alternative approaches. One such alternative was to help create private certification bodies. For 2 Environmental marketing is a concept that was integrated into mainstream business strategies in the early 1990s as a response to public concerns over environmental preservation that began in the 1970s (Menon and Menon 1997). While there are many definitions in the literature, Peattie (1995) describes environmental marketing generally as an integration of relationships between business, society and environment. Kama (2003) defines the concept further, suggesting "environmental marketing connects the company to environmentally and socially conscious and demanding markets." 4 example, free-trade rules in the 1980s limited individual governments' actions on global issues such as tropical deforestation (Bartley 2003). An example is that the Austrian government could not ban tropical timber imports in its legislation as it was a violation of free trade rules under Generalized Agreement on Tariffs and Trade (GATT). As a result, governments themselves began to look for alternative policy approaches. In 1992, the Austrian government followed by the Swiss, Dutch and Mexican governments made some initial financial contributions to the creation of the Forest Stewardship Council - the first third-party private forest certification system (Bartley 2003). 4) The Concept of "Sustainable Development" and the Failure of Inter-Governmental Actions to Achieve it International concern for the environment crystallized in the definition of "sustainable development3" published in the Brundfland Report (1987). Since then, the concept of sustainable development has become the basis of forest management policy goals. At the Earth Summit at Rio in 1992, sustainable forest management was an important issue for participating governments and ENGOs. The outcome of the summit was a release of non-legally binding guidelines for forest management called "Forest Principles". ENGOs considered the non-legality of the Forest Principles as too vague and weak for addressing prevailing forest management issues such as tropical deforestation (Bernstein 2001, Bartley 2003, Cashore et al. 2004) and began to seek out alternative approaches. The Rio summit also recognized the advantages of addressing environmental issues through market mechanisms (Rio Declaration 1992) and this summit marked a clear shift from the traditional command-control approach4 (Bartley 2003). By the early 1990s, internationalization, free-market environmentalism, government support of alternative tools to achieve tropical deforestation and the concept of "sustainable development" and failure of inter-govemmental actions to achieve it collectively created an environment that shifted policy makers to consider third party, market-driven tools to address forest management concerns (Bartley 2003, Cashore et al. 2004). As a result, in 1993, environmental non-govemmental organizations initiated the creation of Forest Stewardship Council (FSC) as the first non-govemmental, market-driven, voluntary and third party forest certification system to promote sustainable forest management 3 The Brundtland Commission (1987) defined sustainable development in "Our Common Future" by stating that "humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs." 4 The command-control approach involves regulating the industry by providing uniform standards for firms. The firms have little or no flexibility in how they meet the standards. Market-based instruments are a form of regulations, which allow firms more flexibility than command-control regulations by allowing firms to act upon market signals rather than strict standards. Voluntary mechanisms provide firms the most flexibility by allowing firms to act voluntarily to reach a policy goal (Takahashi 1999, Stavins 2002). 5 internationally. Since its inception, forest certification programs have emerged rapidly as a means of promoting sustainable forest management. Currently, in North America, there are three main certification programs in practice: Forest Stewardship Council (FSC), Canadian Standards Association (CSA) and Sustainable Forestry Initiative (SFI). 2.2 FOREST CERTIFICATION 2.2.1 The Concept and the Process of Forest Certification Essentially, "forest certification" implies that a forest is managed well; a trustworthy person or an organization has assessed the management practices as sound and guarantees to others that the forest is actually managed sustainably (Meidinger et al. 2003). As a result, forest certification provides a tool to verify that a forest extractor meets a certain set of pre-defined standards developed to achieve sustainable forest management. Just as forest managers can choose to comply with these standards and obtain 'forestland management' certification, wood products manufacturers can choose to utilize raw materials originating from certified forests. If they choose to use raw materials from such forests, the origin of the forest products must be verified, which is called chain of custody (COC) certification5. Wood products manufacturers can also use on-product labels referring to the management of the forests once the origin of forest products is established through chain of custody certification. In other words, forestland certification and COC certification are two inter-connected components of forest certification. Standards are considered to be the base of any certification system (Ervin and Elliot 1996). There are two kinds of standards currently being used for forest certification: system-based and performance-based. System-based standards prescribe standards for the management system. These are based on the assumption that once a good environmental management system is in place, its continuous improvement ensures the underlying objectives of the certification system (Ervin and Elliot 1996). In this process, a certifier evaluates how well a company or a forest manager incorporates their environmental objectives into their Environmental Management Systems (EMS) (Ervin and Elliot 1996). These standards are used to evaluate the quality of a process, not the outcome of the activities in the forests. In contrast, performance-based standards are a range of descriptive performance requirements developed by some standard setting bodies. The way in which a forest is managed is evaluated against the given standard on a pass or fail basis (IIED 1996). This approach evaluates the outcomes of activities in the forests, not the process and can lead to chain of custody certification and product labels. Figure 2.1 explains the relationship between standards and forest certification / product labels. Most of the certification schemes in operation today use some combination of system-based and performance-based 5 COC certification will be discussed in further detail in Section 2.2.1.1 6 standards. The FSC for example, uses performance-based standards with elements of system-based standards in its accreditation program (Ervin and Elliot 1996). Standards Object of assessment Certification Product label System-based Organization's ^ EMS standards • EMS certificate Performance standards of forest management Quality of forest management in a defined forest area Forest management certificate w w Requirements of chain-of-custody control Chain-of-custody of forest products from the forests to the market Product label Chain-of-custody certificate Figure 2.1: Relationship between Standards and Forest Certification / Product Labels (Source: I T T O 2002) The impetus for the development of voluntary certification systems can be attributed, in part, to the demand for certification created by actors along the forest products supply chain, a simple version of which is depicted in Figure 2.2 (Cashore 2002, Kozak 2003, Cashore et al. 2004). The "actors", may include wood products manufacturers, distributors and retailers, and their participation in certification systems mainly depends on incentives created along the supply chain through buyer-customer transactions, such as price premiums for certified products, increased market access, and enhanced corporate image. Consequently, various ENGOs and certification agencies attempt to convince supply chain actors to support their certification schemes by guaranteeing incentives. Tree Sawmill By Products Pulp + Paper Lumber Products Panel Products Value-Added Specifier Builder Retailer ID D c W Figure 2.2: Simplified Supply Chain Diagram for Forest Products (Source: Kozak 2003) 7 2.2.1.1 Chain of Custody Certification (COC) Bass and Simula (1999) define chain of custody (COC) as the "changes of custodianship of forest products and products made thereof during the transportation, processing and distribution chain from the forest to the final end use". In practice, COC certification produces documents that confirm certified raw materials are utilized to make a final wood product according to requirements set by certification bodies. COC certification may result in a product label as a final document to confirm that certified wood is used in the final product. Figure 2.3 below depicts the procedure of COC certification for a value-added wood product. Certified forest-land Forest manager produces a forestland management certification to the harvester and then to the processing mill Mill (supplier 1) must provide "documentation that the wood came from certified forests to the distributor or secondary manufacturer supplier 2 w w Secondary manufacturers either provide documents about the certified wood used to their buyers or use a product label indicating certified raw materials have been used in the finished product. Figure 2.3. A Possible Chain of Custody Certification Procedure Figure 2.3, however, represents an over-simplified explanation of how COC works along the forest product supply chain. In actuality, it is extremely complex and creates a great deal of user confusion (Vidal 2003). For example, for a value-added manufacturer who also produces non-certified materials, applying for COC certification involves separating certified from non-certified raw materials, documenting the percentage of certified input to output materials, and tracing raw materials with serial numbers (Groves et al. 1996). 2.2.1.2 Wood Products Manufacturer Support of/for Forest Certification Three scenarios can be recognized for how wood products manufacturers may support forest certification through COC certification. First, they can use COC certification to provide an eco-label on finished products. A firm chooses to use COC certification if the benefits from the market (see Section 2.2.2), moral values or market pressure outweigh the challenges involved with forest certification (financial and procedural). Second, a manufacturer can support forest certification'by simply utilizing certified raw materials in their products without using COC certification. If this is the case, the consumer cannot differentiate their products as certified because the use of eco labels is prohibited. This scenario 8 applies if the firms find that the costs and challenges of forest certification outweigh the benefits, yet they support the idea of forest certification based on moral and ethical grounds. Third, manufacturers may participate in forest certification by using a combination of both the first and second scenarios; i.e. they may produce certified final product lines as well as produce products utilizing certified raw materials, but not differentiate them as certified. 2.2.2 Market Benefits and Issues of Forest Certification Theoretically, forest certification brings both marketing and supply chain management6 benefits to its participants. There are several marketing benefits worth noting. For example, by participating in forest certification, businesses can inform environmentally conscious consumers about their commitments to sustainable forest management (SFM) practices. Environmentally conscious consumers can reward such companies by differentiating companies that use forest certification from companies that do not. Therefore, forest certification is a mechanism for improving both market access and share. Consumers also may be willing to pay price premiums for certified products (Ozanne and Vlosky 1997, Forsyth et al. 1999, Veisten 2002). In addition, business investments in initiatives such as forest certification, considered to be ethical investments, are increasingly becoming popular among businesses as a means of enhancing corporate image (WWF 2000), which, in turn is linked to financial benefits (Menon and Menon 1997). Supply chain management benefits can also be derived through COC certification. One of the main objectives of supply chain management is to increase channel competitiveness by ensuring customer satisfaction (Mentzer et al. 2001). Once the channel competitiveness is achieved, it benefits all of the member firms in the supply chain. As also implied in its definition, supply chain management proposes to deliver channel competitiveness through a synchronized management of flow of physical goods and associated information from sourcing to consumption (Mentzer et al. 2001). Forest certification researchers have linked the process of COC certification to supply chain management (Vidal 2003, Vidal et al. 2005). For example, firms that participate in COC certification gain management benefits that relate directly to the theory of supply chain management. These include improved communications, better inventory control systems, better understanding of markets, and increased transparency to investors (Groves et al. 1996, Mentzer et al. 2001). Researchers have also linked all of these benefits to a reduction of costs and, therefore, increased profitability to firms (Mentzer et al. 2001). 6 "Supply chain management is a systematic, strategic coordination of traditional business functions within a particular company and across businesses within the supply chain, for the process of improving the long-term performance of the individual companies and the supply chain as a whole", as defined by Mentzer et al. (2001). 9 There are, however, several challenges involved in forest certification. One of the main challenges is the costs associated with COC certification of which there are two kinds (Simula 1996): direct costs - "which are needed to cover the actual certification costs; they are paid to the certifying organization"; and, indirect costs - which "are required to achieve the adequate management and information systems that need to carry out a reliable verification system". Another important consideration with chain of custody is the cost for the additional storage needed to separate certified wood from uncertified wood. In a manufacturing plant, there should be parallel production lines for both certified and uncertified products, unless the company uses 100% certified products (Simula 1996). These costs can vary depending on company size, their existing certification systems, and their position on the supply chain (Simula 1996). In addition to financial costs, many companies, value-added producers in particular, view chain of custody certification as a complex and cumbersome procedure, especially if manufacturers have to purchase raw materials from many sources. However, this can vary according to the complexity of the company's supply chain and the decision to have both certified and uncertified production lines (Vlosky and Ozanne 1998). Furthermore, Bull et al. (2001) mention that confusing terminology with regard to sustainability may hinder companies implementing wood procurement policies, such as forest certification, which the authors consider to be the best tool for verifying that a wood product comes from a sustainably managed forests. 2.2.3 Certification Schemes Since the introduction of Forest Stewardship Council (FSC) in 1993, one of the main trends in forest certification has been the development of many different certification schemes by various organizations. For the most part, these schemes can be classified in three ways: 1) NGO-oriented vs. forest product industry-oriented (or FSC vs. FSC competitors) 2) international vs. regional standards 3) system-based standards vs. performance-based standards (Vertinsky and Zhou 2000, Takahashi et al. 2003, Cashore et al. 2004). Below, is a brief overview of the four main certification systems, which have significantly influenced both the growth of certified forest area and certified forest products markets in North America: International Standards Organization (ISO); The Forest Stewardship Council (FSC); Canadian Standards Association (CSA); and, Sustainable Forestry Initiative (SFI). International Standards Organization (ISO) ISO is an international federation of national standardization bodies founded in 1947 to promote international standards and to facilitate trade (Gulbrandsen 2004). In 1996, ISO incorporated environmental standards, initiating the ISO 14001 Environmental Management System (EMS), which 10 can be used for forest certification. ISO 14001 uses a system-based standards approach and, therefore, does not certify forestlands or produce an eco-label. Rather it certifies management systems. Therefore, ISO might not have a direct impact on end-consumer behavior but it might help firms in building corporate image (Vertinsky and Zhou 2000). Critics of ISO argue that this system lacks transparency, adequate representation by environmental and social groups, and does not promote sustainable forest management (Gulbrandsen 2004, Leslie 2004). ISO 14001 system is not considered performance-based system. The Forest Stewardship Council (FSC) Founded in 1993, FSC is an independent, non-profit, multi-stakeholder organization, currently based in Bonn, Germany. FSC standards are performance-based and endorse ten principles and criteria that address social, environmental, and economic issues in global forest management. Regional and national working groups of FSC (authorized by the main FSC body) develop standards specific to each region that must be consistent with the central principles and criteria (Cashore 2002). The chain of custody certification of the FSC program produces two types of eco labels for wood products: one for certified products made with 100% of certified raw materials; the other for products made with a minimum of 70% of certified raw materials (Anderson and Hansen undated, FSC 2004). FSC also allows firms and groups that wish to support the FSC to use the FSC logo in brochures, websites, and advertisements for educational purposes even if they do not hold FSC forest management certification or chain of custody certification (Anderson and Hansen undated). FSC statistics show that the demand for the FSC certification scheme has increased since its inception in 1993. By mid 2001, 5% of world working forests were certified under FSC, and more than 1,700 chain of custody certifications were issued (Conroy 2001). Consumer demand is also reported to have increased, even with price premiums in certain markets such as European softwood markets (Conroy 2001). However, FSC demand is not driven mainly by end-consumers, but by customers such as retailers and buyers groups7 like the Global Forest Trade Network (GFTN). FSC claims that it is the most credible certification scheme in the forest product industry (Conroy 2001, FERN 2004). FSC governance incorporates the interests of members from environmental, social and economic sectors from NGOs, academic institutions, and other interest groups. Cashore (2005) states that this "tripartite" governance has helped FSC to gain a wide range of stakeholder acceptance in achieving a high level of credibility. 7 A buyers group is a group of members that commit to buy certified forest products in order to create demand for certified forest products. Buyers groups are discussed further in detail in Section 2.3.2. 11 Regional/ National Certification Schemes Three national/regional certification schemes have gained momentum during last five years: Sustainable Forestry Initiative (SFI) - USA; Canadian Standards Association (CSA) - Canada; and Program for the Endorsement of Forest Certification schemes (PEFC) - Europe. Table 2.1 summarizes these and some other regional certification schemes operating in the world. Table 2.1: Review of Selected Forest Certification/Verification Schemes (Source: Bass and Simula 1999 & Fletcher et al. 2002) Country Title Coverage International Framework for the Standards Forest COC Label International Forest Stewardship Council- FSC Y Y Y FSC - Performance Based Standards Europe Program for the Endorsement of Forest Certification - PEFC Y Y Y Pan-European C&I and Operational-level Guidelines for SFM Canada Canadian Standards Association - CSA Y Y Y Montreal Process C&I, ISO 14001 EMS Standards USA & Canada Sustainable Forestry Initiative (SFI) Y Y Y Montreal Process C&I, International Forest Industry SFM Vision, Principle and Elements International International Organization for Standardization - ISO Y N N ISO 14001 EMS Standards System Based Standards Finland Finish Forest Certification (FFCS) Y Y N Pan European C&I and Operational Guideline, FSC Germany German Forest Certification Council Y Y Y Pan European C&I and Operational Guideline Norway Living Forest Y Y N Pan European C&I and FSC Sweden Family Forest Certification System Y Y N Pan European C&I and FSC United Kingdom UK Woodland Assurances Scheme (UKWAS) Y N N Common audit protocol with FSC In North America, several certification groups compete with FSC (Cashore et al. 2004). In the United States, the national trade association for forest, paper, and wood products industries, the American Forest and Paper Association (AF&PA), initiated the Sustainable Forestry Initiative (SFI) in 1994 (Gulbrandsen 2004). SFI started with a system-based focus on sustainable forest management with flexible performance guidelines and requirements (Cashore 2003b). Although SFI has national principles, companies are given considerable freedom to interpret and elaborate these standards (Gulbrandsen 2004). SFI offers four types of on-product labels through third party audits of a firm's procurement system (SFI 2005, Anderson and Hansen undated). 12 Many FSC supporters criticize SFI standards for their lack of environmental and social aspects (FERN, 2001). In response to these criticisms, SFI has undertaken changes in their standards and the standards development process. For example, the SFI developed an independent body in 2002 called the Sustainable Forestry Board (SFB) to represent environmental and forest community interests in standards setting (Raunetsalo et al. 2002). Now SFI is becoming a powerful force in the USA and it is expected that SFI will become very important in Canada (Brown and Greer, 2001), the biggest wood products exporter to the USA. In Canada, the CSA forest certification system was created by the members of the Canadian Pulp and Paper Association and a number of industry associations in 1996 (FERN 2001, Zakreski et al. 2004) to compete with FSC certification at the national level (Cashore et al. 2005). CSA is a standards association that adopted a CSA national forest certification scheme under the sustainable forest management criteria developed by the Canadian Council of Forest Ministers (Gulbrandsen 2004). These standards were consistent with ISO 14001 EMS standards and included elements of the Montreal and Helsinki governmental initiatives (Bass 1997, Gulbrandsen 2004). While CSA is similar to SFI in its flexible performance-based standards, unlike SFI, CSA requires extensive stakeholder participation in the development of standards (Cashore 2003). To obtain CSA forest management and COC certification, a third party audit is required. On-product labeling is offered by the CSA "Forest Products Marking Program". Under CSA, a firm has three labeling options depending on how the inventory of certified forest products are managed (CSA 2004, Anderson and Hansen undated). Table 2.2 presents the forest area certified by main certification schemes in Canada and USA. Table 2.2: Area Certified in North America under the Main Certification Schemes (in millions of hectares) CSA (by May 2005) FSC (by May 2005) SFI In Canada Source: Canadian Sustainable Forestry Certification Coalition 2005. 63.7 4.9 36.8 (by May 2005) In U S A Sources: FSC & SFI websites. SFI gives the total area certified in both Canada and USA. Therefore, area for USA was calculated by subtracting the value for Canada from the total SFI. 7.5 26.0 (by Dec. 2004) Note: some areas in USA may hold both FSC and SFI certifications 13 2.2.4 Market Credibility A forestland manager or a forest products producer who decides to participate in forest certification is faced with a strategic decision to choose a certification scheme that has credibility. The perceived level of credibility can affect the market demand for products, the nature of the market (Vertinsky and Zhou 2000), and the ability of the certification scheme to promote sustainable forest management practices. A wide range of stakeholder (including consumers) acceptance indicates the credibility of a certification scheme. Three main attributes of certification schemes can be found in the literature as affecting the stakeholder acceptance of any certification scheme, and thus its credibility (Hansen 1997, Vertinsky and Zhou 2000, Leslie 2004). These are as follows: Standards Makers Any stakeholder can develop standards for forest certification: academics, members of non-governmental organizations, forestry associations, industry associations, certifiers, governments, or combinations of any of these groups. However, not all stakeholders are equally trusted in the development of standards that promote sustainable forest management practices. For example, in some countries, the public trusts governments to develop standards (Vertinsky and Zhou 2000). In other countries, the consumers trust environmental and social groups more, while manufacturers may prefer themselves (Ozanne and Vlosky 1997, Vlosky and Ozanne 1998). Who has rights to develop standards and who should be trusted is an ongoing debate in the discourse of forest certification. Balance of Stakeholder Input in Standards Participation of stakeholders with a wide range of interests in developing forest management standards also contributes to credibility and acceptance. FSC standards are currently considered the most credible based on their attempt to balance the interests of economic, social, and environmental stakeholders,.as well as the interests of developed and developing countries, (Conroy 2001) while SFI standards are criticized for their lack of representation of a wide range of stakeholder interests (Fung 2002). However, SFI has responded to these criticisms by changing their policies for stakeholder participation (Raunetsalo et al.2002). Type of Audit First, second, or third parties can verify the compliance to standards by a forest manager or wood products manufacturer. A first-party audit involves a self-assessment of compliance to a set of standards. Second party auditing involves an assessment by a second party: a consumer, industry, or any other group. Third-party verification involves an independent audit of a forest operation or production method by a third party. First and second-party verification has thus far created conflicts of interest among forest 14 certification's stakeholders and is considered the least credible (Bass 1997, Ozanne and Vlosky, 1997). Today, third-party verification is recognized as the most credible verification method. 2.3. MARKET IMPACTS - Evolving Lessons, Experiences and Trends 2.3.1. Adoption A considerable amount of research has attempted to understand what motivates supply chain actors to support forest certification schemes when compliance is not required by law. The threat of consumer boycotts is considered one of the main reasons for firms to support forest certification (Cashore et al. 2003). For example, FSC was initially supported by industry giants such as Home Depot and MacMillan Bloedel, who themselves were affected by consumer boycotts organized by environmental organizations (Cashore et al. 2003). In fact, the largest part of the market demand for forest certification is reported to be coming from larger retailers whose corporate images have been under threat by ENGO campaigns (Ozanne and Vlosky 1997, Hansen and Juslin 1999). However, other research suggests that pressure from environmental groups or buyers may be less significant than the positive economic incentives inherent in adopting forest certification (Vlosky and Ozanne 1998). Environmental marketing research elucidates that benefits, such as improvements in corporate image, consumer price premiums, and competitive advantage motivate firms to integrate environmental marketing strategies, like forest certification, into their marketing plans (Menon and Menon 1997, Kama et al. 2001, IBM 2002, Prakash 2002, Kama 2003). Research on corporate responsibility suggests that some firms integrate environmental and social aspects into their marketing plans on ethical and moral grounds (Prakash 2002, Cashore et al. 2004). These actions may provide economic benefits in the end, but rarely in the short run (Hart and Ahuja 1997). Menon and Menon (1997) claim that firms may adopt environmental marketing strategies to achieve short run economic and/or long run objectives; however, firms that try to gain only economic benefits may not incorporate strategies like forest certification into their marketing plans. On the other hand, firms that pursue sustainability and believe in a free market system are more likely to adopt environmental marketing planning proactively and voluntarily and such companies are best positioned to accrue short and long term benefits from such strategies (Kama 2003). In addition, empirical research indicates that factors such as company size, location (country or regions), and infrastructure of the sector that firms operate in (secondary or primary manufacturers or harvesters, land ownership, etc.) also influence companies in their decisions to adopt forest certification (Vlosky and Ozanne 1998, Vidal 2002, Takahashi et al 2003). First, large companies are best positioned to bear the costs of forest certification. Second, location influences firms' decisions to adopt forest certification depending on the nature of the market. The nature of the market for certified forest products 15 is influenced, in turn, by the institutional structure of a society. For example, in countries where "green values" predominate, firms may find it easy to develop a market for certified products or it may be difficult to operate otherwise (Vertinsky and Zhou 2000). Third, the infrastructure of the sector in which firms operate may influence their decisions to adopt forest certification. For example, Canadian primary forest products manufacturers are more vertically integrated than secondary manufacturers, making it comparatively easier for them to source certified wood and adopt COC certification. 2.3.2. Are the Benefits a Reality? As the dynamics of forest certification begin to become visible in the marketplace, researchers and industry are showing a keen interest in looking at how the theoretical promises of certification are becoming a reality along the forest products supply chain, beyond just forest harvesting. Financial Premiums Initially, supporters of certification schemes argued that strong consumer concern for environmentally sensitive issues exists and will cause consumers to discriminate against products, services, and processes that are environmentally insensitive. Further, they mentioned that consumers would even be willing to pay price premiums for greener products. Early research that investigated consumer concerns on environmental issues in the US suggested that there was indeed a strong consumer preference for "green" products (Ottman 1992). A survey by World Wildlife Fund8 (WWF 1991) reports that consumers would be willing to pay premiums of 5% - 15% for certified wood and that this would affect 20% of the European and 10% of the United States tropical timber market (Bass et al. 2001). A study of homeowners found that 63% of respondents were willing to pay more for certified forest products (Ozanne and Vlosky 1997). A survey of consumers in the home improvement market in British Columbia showed that 13% of the respondents were willing to pay more than a 10% price premium for certified wood products (Forsyth et al. 1999). In Ontario, it was shown that 39% of respondents were willing to pay 10% more for different certified forest products (Spinazze and Kant 1999) and all of the respondents were willing to buy certified products in favour of non-certified products. In some markets such as New Zealand, forest certification was considered one of the most important product attributes in the decision to purchase forest products (Bigsby and Ozanne 2002). However, limitations to these positive results are evident. Some research has shown that "consumer willingness to pay", as claimed by consumers, does not always translate into actual behavior (McGuire 1985, Sheth and Parvatiyar 1995, Hansen 1997, Anderson and Hansen 2004). The difference between consumers' intentions and actual practices are generally explained by "collective action World Wildlife Fund is now called World Wide Fund for Nature. 16 dilemmas9"(Prakash 2002) and the hypothetical nature of "willingness to pay" (Boardman et al. 1996). Some empirical results support this idea; Humphries et al. (2001) and Jensen et al. (2003) found that the majority of certified product manufacturers do not get price premiums at all. Further, consumers' willingness to pay premiums seems subject to income levels (consumers with higher income levels are more inclined to pay price premiums) (Ozanne and Vlosky 1997), types of products (high-end wood products such as furniture are more likely to receive price premiums than primary products such as lumber) (Spinazze and Kant 1999). Forsyth et al. (1999) reported that consumer price premiums are not an absolute price, but should be considered relative to the price and quality of a product. Increased Demand Another benefit that firms expect by participating in forest certification is an increase in market demand. Despite early expectations of high consumer demand for certified forest products, UNECE/FAO (2004) reports that demand for certification is mainly driven by large retailers and distributors, while consumer demand continues to impact only market niches. An explanation for this may be a lack of consumer awareness about forest certification (Gronroos and Bowyers 1999). According to the survey results of Gronroos and Bowyers (1999), some respondents (end consumers) had not even seen any connection between certified forest products and improved forest management practices. Another explanation may be that certification agencies and ENGOs, such as FSC and WWF, strategically target industrial players downstream in the supply chain 1 0 in creating demand for their certification schemes. An example for ENGOs' effort to create demand among industrial players is the creation of buyers groups. Members of such groups commit to buy only certified wood. As a result, buyers groups drive demand for certified wood, almost ensuring that certified forest products manufacturers will increase their market share (UNECE/FAO 2004). In addition, buyers groups positively affect consumer demand by increasing the availability of certified wood products in the marketplace (Ozanne and Vlosky 2003). Today, buyers groups represent a considerable market force for certified forest products, as indicated by their growth in popularity. These groups started in the U K and spread to other parts of Europe and North America and there now exits a global buyers group called Global Forest Trade 9"Collective action dilemmas" explain divergence in individual and collectively rational behaviors of individuals towards non-excludable costs and benefits. Prakash (2002) explains that rational consumers often want the benefits of a better environment (a non-excludable benefit) without directly paying for them. If firms can offer certified products at no additional costs and those products are same quality as non-certified products, a collective action dilemma does not occur. 1 0 Downstream players who are close to consumers are more vulnerable to ENGO pressures; ENGO's indirectly target upstream players closer to the forest using pressure on downstream players (Vertinsky and Shou 2000). It is also economical for them to target few commercial players instead of mass consumer markets. As Bartley (2003) suggests, consumer demand for environmentally friendly products is a result of strategic market building efforts by ENGOs and certification agencies more than the result of pre-existing consumer environmental consciousness. 17 Network (GFTN) (UNECE/FAO 2004). However, some argue that buyers groups create an inequitable market force in the sense members of buyers groups get certified wood products without having to pay price premiums to their suppliers as together they exert a tremendous amount of market influence (Leslie 2003). Other Benefits Wood products manufactures' experiences with other benefits of certification, such as improved company image and increased market access, have not shown any significant financial gains to date (Hansen 1997, Hansen and Punches 1999, Vidal 2002, Takahashi et al 2003, Hubbard and Bowe 2004). Humphries et al. (2001) and Vidal (2002) link this to market immaturity, the indirect nature of most of the benefits, and the low awareness of certification among manufactures11. However, some evidence now suggests that certification may have helped companies improve their images and gain market access (Hansen and Punches 1999, Hubbard and Bowe 2004). 2.3.3 Challenges Research on forest certification among wood products manufacturers has also indicated the challenges that manufacturers face when working with forest certification. One such challenge is the cost of obtaining chain of custody certification (Vlosky and Ozanne, 1998, Vidal, 2003, Hubbard and Bowe 2004, Vidal et al. 2005). Most companies are not ready to bear the immediate costs of certification if they cannot pass that cost onto consumers/customers as price premiums for their short-term gains. Due to the skepticism surrounding the ability to achieve price premiums, manufacturers may be reluctant to invest in forest certification. As a result, manufacturers may continue to focus on traditional product attributes such as price and quality (Prakash 2002). However, companies with long-term objectives may bear certification costs based on their moral values and ethics (Cashore et al. 2004). Another significant challenge is the inadequate supply of certified wood (Bull et all. 2001). Value-added manufacturers, in particular, report limitations in getting on-time species-specific certified wood for their products. Miller (2002) illustrates the difficulty with two examples. One example comes from Martin Guitar Co. Inc, which has made a corporate policy of using certified wood for their guitars, but faced difficulties in meeting their certified wood demand. Another, Larry Spinkes, co-owner of Woodbridge, a furniture manufacturer, says, "I can find certified Oak, but I cannot meet the demand of a customer who needs certified Walnut". 1 1 Kama et al. (2003) and Menon and Menon (1997) state that companies that proactively integrate environmental marketing planning are best positioned to gain benefits from such strategies. Accordingly, it is important for managers (forests or companies) to understand how the concept of forest certification works in order to integrate forest certification into their marketing plans. 18 Research on wood products manufacturers' experiences with forest certification, in general, indicates a range of manufacturer attitudes towards forest certification from not at all supportive to completely supportive. Despite these mixed attitudes, the consensus among users of certification is that certification can positively impact their firms, although, developing markets for certified products can be difficult (Hansen 1997, Hansen and Punches 1999, Takahashi et al. 2003). 2.3.4. Recent Developments - LEED The Leadership in Energy and Environmental Design Green Building Rating System® (LEED) is an emerging force in the demand for forest certification. The LEED system is a points-based sustainable building rating system developed by members of the U.S. Green Building Council (USGBC) that recognizes building projects demonstrating sustainability (USGBC 2005). This system affects demand for certified wood because participants in the LEED system can earn one credit point for using certified wood in their building projects towards the minimum twenty-six points they need to become LEED certified (USGBC 2005). As the LEED system gains popularity, it provides a new market for all the parties involved in building projects, such as specifiers (architects, structural engineers and interior designers), builders, distributors, primary producers and value-added manufacturers. Now that the LEED system is becoming increasingly popular in the commercial building sector (Ervin 2002), and expanding into the USA and Canadian commercial interior and housing markets (Libby 2004), it can serve as an important demand driver for certified wood products in both the primary and secondary wood products manufacturing sectors. At the moment, however, the system recognizes only FSC certified wood. Specifiers and builders make up a group of supply chain players that can affect the demand for forest certification in a unique way. They do not have to comply with the rules of certification, but could influence manufacturers or end-users (such as homeowners) in using certified wood, and thus affect the demand for certified wood. Bass et al. (2001) found that specifiers often choose certified wood products based on their personal values even though difficulties in procuring certified wood and low consumer awareness may discourage them from supporting forest certification at all times (Stevens et al. 1998). 2.4. CANADIAN VALUE-ADDED WOOD PRODUCTS MANUFACTURERS AND FOREST CERTIFICATION 2.4.1 Sector Profile The forest products industry consists primarily of two sectors: the commodity products (pulp and paper, lumber) sector; and the value-added sector. There is some ambiguity in this classification because primary products also add value to raw materials (Wood Manufacturing Council 2002) and, for this reason, they are often referred to as "secondary" wood products. Generally, primary products are 19 defined as those that use raw timber as raw materials, while value-added or secondary products are those that use primary products as raw materials (Vlosky et al. 2003). Table 2.3 shows some general categories of value-added products. Table 2.3: General Categories of Value-Added Products (Adapted from Kozak and Maness (2003)) Remanufactured wood products Shakes and shingles Pallets and boxes Fences Miscellaneous other products (toys, ladders etc.) Engineered wood products Mouldings, millwork and floors Doors and windows Cabinetry Furniture Home systems The value-added sector has great economic significance to Canada; it is one of the leading manufacturing sectors in Canada, with healthy economic growth providing more than 94,000 jobs (Wood Manufacturing Council 2002). The importance of this sector in terms of contributing to sustainable economic growth is fast increasing due to a number of factors. Traditionally, the Canadian forest industry has depended on commodity manufacturing, which demands a low level of innovation. With globalization, the Canadian commodity sector is facing its highest level of competition, forcing the forest products industry to move into more of an innovative value-added orientation (Wood Manufacturing Council 2002). The world's demand for value-added wood products is expected to increase significantly, while primary products, such as softwood lumber, is expected to see only moderate growth (Martin and Porter 2000, Industry Canada 2003). Additionally, evidence suggests that commodity prices in the world market are decreasing (Industry Canada 2003). While the Canadian primary wood products sector remains, and will continue to remain, an important economic contributor to the wood products industry, the Canadian value-added sector is growing significantly, primarily due to the factors highlighted above. In fact, the contribution from value-added products to Canada's balance of trade has increased from near zero in 1991 to $1.5 billion in 1997 and revenues have doubled from 1990 to 2002 (Industry Canada 2005). 2.4.2 Forest Certification in the Value-Added Sector The ways in which supply chain players in the forest sector adopt forest certification may depend on the characteristics of the sector in which the firms operate. The Canadian value-added wood 20 products sector has several distinct characteristics that affect a manufacturer's choice of whether to adopt certification or not. One of the main characteristics of the value-added sector is that it is composed of fragmented, small and medium sized firms. By contrast, Canadian primary manufacturing firms are usually large international conglomerates (Kozak and Maness 2003). The small firm size of value-added manufacturers could be a negative factor in terms of meeting the economies of scale needed to justify the cost of forest certification. In addition to the small size, the sector mostly serves domestic markets, with management that tends to concentrate on production rather than marketing strategies (Wood Manufacturing Council 2000). This structure makes firms production oriented with little interest in or need to consider corporate image. This may also imply a lower focus on customer wants/needs. Another factor is that this sector has little or no vertical integration. This may play a negative role in persuading firms to consider forest certification. Individual ownership means that firms' supply chains are more complicated than if they were vertically integrated. Therefore, tracking wood along all sources could be a very difficult task as this may require firms having advanced means of obtaining information about certified wood. In reality, however, the Canadian value-added industry has little access to capital and a poorly educated work force, which may act as barriers to retrieving advanced information systems (Kozak and Maness 2003). Researchers have just begun to investigate the dynamics of forest certification in the North American value-added wood products sector. One recent study finds that only a small percentage of US value-added manufacturers have adopted forest certification, especially COC certification (Vlosky et al. 2003). The authors have linked this situation to a low level of awareness among manufacturers of forest certification associations and forest certification in general. They also suggest that this low level of awareness is an implication of the fact that forest certification schemes are not well positioned in the minds of value-added wood products manufacturers. With regard to the price premiums, this study showed that nearly half of the respondents were not ready to pay any price premiums for their certified raw materials, while 51% the respondents expected a price premium of between 1-10% from their customers in order to participate in forest certification. Another interesting result of this study was that, of the respondents who were currently not in the business of certified wood products (i.e. the majority of the studied sample), 86% has indicated that they would monitor forest certification developments and adopt it if needed. However, these results could not confirm anything about the US value-added sector due to the exploratory nature of the study. In the Canadian value-added sector, Kozak et al. (2004) conducted an exploratory study to gauge consumer acceptance of certified value-added products. They concluded that there is potential to develop markets for certified value-added wood products, especially if more effort is spent increasing consumer awareness of forest certification. 21 2.5 PROBLEM STATEMENT AND OBJECTIVES As forest certification gains popularity in Canada, it brings to mind questions that have not yet been addressed. For instance, "what do wood products manufacturers think about forest certification?" Answering this question helps to understand the status of forest certification in forest products manufacturing sectors. The future success of forest certification may depend on manufacturer and consumer acceptance of forest certification. Therefore, understanding the level and nature (status) of manufacturers' involvement and awareness of forest certification and its impacts can contribute to the successful design and implementation of forest certification schemes for the future. "What do Canadian value-added wood products manufacturers think about forest certification?" This is the question that my thesis purports to answer. I chose to study Canadian value-added manufacturers for several reasons: 1) The growing importance of the Canadian value-added sector suggests that impacts of forest certification in this sector should be better understood. 2) The absence of previous research in the Canadian value-added wood products manufacturing sector with regard to forest certification has created an information gap, which needs to be addressed in understanding dynamics of forest certification. 3) Recent research on Canadian value-added wood products consumers has suggested that there are opportunities for value-added manufactures, if they choose to incorporate forest certification into their marketing strategies (Kozak et al. 2004). In order to educate manufacturers about utilizing forest certification as a marketing strategy, it is important to understand their current levels of awareness and attitudes towards forest certification. 4) The value-added sector is well placed in the center of the wood products supply chain; it acts as both a buyer of certified wood products and a seller of certified value-added wood products. Thus, it represents an ideal starting point for companies to develop business strategies along the supply chain related to forest certification. In order to achieve the broader objective of the research, I have developed three specific objectives: 1) to evaluate the current level of adoption of forest certification by value-added manufacturers; 2) to assess the knowledge and awareness of value-added manufacturers regarding forest certification; and, 3) to assess value-added manufacturers' general attitudes towards forest certification and towards the benefits and challenges of forest certification. 22 3. METHODOLOGY The purpose of this thesis is to analyze the current situation for forest certification in the Canadian value-added wood products manufacturing sector. The overall aim is to observe and describe current trends and experiences that manufacturers have with forest certification. These objectives were met primarily through mail surveys of value-added wood products manufacturers implemented across Canada. The study was conducted in two phases: 1) Exploratory Phase - consisting of ten telephone interviews with forest certification stakeholders; and 2) Descriptive Phase - consisting of a mail questionnaire sent to Canadian value-added wood products manufacturers. 3.1 EXPLORATORY PHASE The exploratory research was conducted with the purpose of gauging the suitability of variables required to achieve the study objectives and to assist in the design of the mail survey. Aimed at collecting information from a range of forest certification stakeholders, the exploratory phase consisted of interviews with personnel from two lumber manufacturers, a window manufacturer, three forestry academics, two environmental non-govemmental organizations (ENGOs), and two certification agencies. Convenience sampling was used to select interview subjects for this phase because the information obtained was used only as an aid in the design of the mail questionnaire. For the exploratory phase, ten forest certification stakeholders were surveyed by telephone. Open-ended interviews were intended to gain as much information as possible beginning with the question: What do you think of forest certification today and in the future in terms of your experience and what is your attitude towards certification? An advance notification letter was sent to the selected stakeholders in November 2003 describing the project, explaining the time requirements and confidential nature of the research, and arranging a time for the interview. Appointments were made and interviews were conducted during the period from 15 December 2003 to 27 February 2004. Only one respondent refused to participate in the interview12. Results of this exploratory analysis were not reported here because they were used only to inform the survey development. Names of respondents in the exploratory phase of this research are not provided in order to maintain anonymity. 23 3.2 DESCRIPTIVE PHASE 3.2.1 Data Collection, Definition of the Population and Sampling Methods The descriptive phase of the study consisted of surveys of value-added wood products manufacturers across Canada. "Value-added" in this study is defined as wood products companies that use primary wood products as raw materials. A list of 2,607 Canadian value-added manufactures (sample frame) was obtained from four sources: 1) Quebec Wood Exporting Bureau (QWEB); 2) BC Wood Specialties Group; 3) Wood Manufacturing Council (WMC); and 4) Forintek Canada Corp. This phase of the study employed a stratified random sampling method. A sample frame of 2,607 companies was separated into five regions (strata) in Canada: Western Canada, Prairies, Maritimes, Eastern Canada and Northern Canada. Based on the distribution of companies in each region of the sample frame, a sample of 1000 companies was randomly selected from each region (based on a proportional allocation method), as detailed in Table 3.1. A sample size of 1,000 was selected primarily based on budgetary constraints. The scientific validity of the chosen sample size (i.e. 1000) to produce results that can be inferred onto the population of Canadian value-added producers was calculated using the sample size method for a simple random sample13. The equation used to calculate the minimum sample size was; 1 " 0.05/2,d.f 30 "y Where: N = Population size (sample frame) = 2607 AE = allowable sampling error = 0.2 (based on a five-point interval scale) S y 2 = Variance of the variable = 1 (based on a five-point interval scale) t = t value at infinity degrees of freedom, a = 0.05/2 = 1.96 n = the minimum sample size required to achieve the given allowable sampling error Five-point interval attitudinal variables used in the questionnaire were selected as the variables to base this equation on because they are the most commonly used variable types in this study. The variance of these variables (Sy2) was estimated by dividing the range of the scores by four (Kozak 2002). In the attitudinal variables used in this study, a scale of one to five from strongly disagree/ likely to strongly disagree/not likely was used. As a result, the range of the scores was 4 (5-1), and an estimate of 1 3 Sample size was not calculated based on each stratum in this study or according to stratified sampling methods. Minimum sample size calculations for each stratum based on stratified sampling methods include understanding the variation of variables under study within each stratum (LeMay and Marshall 1990). Obtaining this information was difficult due to budgetary constraints. 24 the variance of the variable is therefore, 1. At a confidence level of 95% (or 0.05 significance level), the allowable sampling error (AE) was set at 0.2, meaning that significant differences would have to be equal to or greater than 0.2 to be detected. Using the above parameters, the equation resulted in a sample size of (n) = 93 (92.5). Therefore, to have a precision of ±0.2 around the parameter estimate (in this case the mean value of the attitudinal variable), the minimum size of the sample should be 93. In the case of this study, a minimum of 93 completed surveys have to be obtained in order to make inferences onto the population with the desired precision. Based on previous research on the Canadian value-added sector, I expected a response rate of 10%-15% or between 100-150 completed surveys for this study. Since the minimum sample size required was below the expected sample size, the total mail-out size of 1000 was deemed sufficient to produce results that could be inferred onto the population of Canadian value-added producers. Table 3.1: Sample Selection from the Sample Frame by Region Western Canada Prairies Maritimes Eastern Canada Northern Canada Total Percentage distribution of companies in the sample frame 24.32% (634) 3.11% (81) 2.67% (70) 69.78% (1819) 0.12% (3) 100% (2607) Proportionate number of companies in a sample of 1000 240 31 27 698 1 1000 Number of companies modified to ensure that the Prairies and Maritimes were not underrepresented14 226 62 54 656 2 1000 3.2.2 Mail Survey Design and Implementation The mail questionnaire consisted of four sections (Appendix I). Section 1 gathered information for profiling value-added manufacturing companies. This included information such as location, types of products manufactured, numbers of employees, and sales revenues. Section 2 began with a simplified definition of forestland certification and chain of custody and then posed questions to gauge manufacturers' awareness of, attitudes towards, and adoption of forest certification. Section 3 gathered information from companies currently interested or engaged in forest certification. This included: reasons for being interested; attitudes on benefits and costs of forest certification; and experiences or expectations regarding the sourcing of certified raw materials and the marketing of certified finished 1 4 In order to make sure that underrepresented regions were sufficiently sampled, the numbers of companies sampled in the Prairies, Maritimes and Northern Canada were doubled, and the numbers in the other regions were adjusted accordingly to maintain a total sample size of 1,000. 25 products. Section 4 gathered manufacturers' views on forest certification in general. At the end of the Section 4, respondents who were interested in the results of the study were given the opportunity to provide contact information (Appendix III presents respondents' answers to open ended questions of the survey). Taken together, all four sections (four pages) provide a comprehensive profile of each company's experience with various aspects of forest certification initiatives. The implementation process for the mail surveys followed Dillman's (1978) and Babbie's (2001) methods for increasing response rates. The implementation process consisted of four mail outs. The first mail-out was mailed to the entire sample on 29 April 2004 and consisted of a cover letter, the questionnaire and a pre-paid return envelope. The second mail-out was sent to the entire sample on 14 May 2004 and consisted of a letter only. The third mail-out was sent only to those who did not respond to the first and second mail outs. It consisted of a cover letter, the questionnaire and a prepaid return envelope and was mailed out on 10 June 2004. The fourth mail-out was sent on 22 July 2004 to companies that did not respond to the previous three mail-outs. It consisted of a cover letter, the questionnaire, and a pre-paid return envelope. Four different cover letters were designed for each mail-out (see Appendix II). The main purpose of the cover letters was to request participation in the study. However, at each stage the cover letter took a different form: the first, third and fourth letters served to explain the objectives of the project, guarantee respondent anonymity, offer contact information for further information, and stress the importance of their voluntary participation in the study. The second letter served as a note of thanks for respondents who participated and a request to participate for those who had not. Benwell Atkins Ltd., Printers and Mailers printed the questionnaires, cover letters, and envelopes in a professional booklet format. Return envelopes were addressed to the Department of Wood Science at the Faculty of Forestry. Surveys were coded from 0001 to 1000 in order to identify respondents so that they were not contacted in the third and fourth mail-outs. 3.3 ETHICAL CONSIDERATIONS The Ethics Committee of the Behavioral Research Ethics Board at the University of British Columbia approved all the cover letters and the mail questionnaire. The approval confirms that this study was in accordance with ethical grounds for research involving human subjects. 3.4 DATA ANALYSES The data collected from the mail surveys was analyzed using both univariate and multivariate statistical techniques. The software packages, SPSS 11.0 and Microsoft^ Excel, were used to perform these statistical analyses. 26 At the univariate level, both descriptive and inferential statistics were used to interpret the data depending on the scale used in each question of the mail questionnaire. Four types of scales were used in the mail survey questionnaires: nominal; ratio; interval scale; and ordinal data (rank order). The nominal data collected was analyzed using frequency distributions. Forced choice questions were used to collect nominal data such as company location, level of involvement with forest certification, reasons for a lack of interest in forest certification, choice of certification bodies, issues with forest certification, information on certified raw materials suppliers and markets for certified finished products. Examples of ratio data collected include percentage of raw materials used, proportion of sales in domestic and international markets, number of employees, and sales revenues. This data was analyzed using relative frequencies and mean values with 95% confidence intervals to make statistical inferences. Attitudinal information in the mail surveys was collected using continuous interval scales, including the Likert scale. These data was analyzed by computing means, standard deviations and 95% confidence levels to make statistical inferences. Mean values for each variable were also tested against a mean value of three (at alpha = 0.05), considered to be the neutral value in a five-point interval scale. This test was a significance test used to verify whether means were significantly different from a neutral attitude level. Ordinal data collected from surveys was analyzed using evaluation points. Respondents rank ordered issues of importance to their business, trust of entities that make environmental claims, their reasons for participating in forest certification, and issues regarding certified raw materials. Respondents were asked to rank each variable from 1 to 3 or 1 to 6, with 1 being the highest rank. Each rank was then assigned arbitrary scores as evaluation points. For example, if the rank was from 1 to 3, arbitrary scores of 3 to 1 were assigned to the ranks 1 to 3, respectively, as evaluation points. Each variable was then analyzed based on the total evaluation points. This was a descriptive analysis (i.e. not inferential). At the multivariate level, cluster analysis and logistic regression techniques were used for further analysis of the data. Each is discussed in rum. Cluster Analysis Cluster Analysis was conducted to identify similar characteristics of companies that are most likely to adopt forest certification. Companies' attitudes on forest certification were used for this analysis (see Question 3, Section 2 of the questionnaire). The technique of K-means clustering, a partitioning technique, was used in this analysis. K-means clustering is recognized as appropriate for larger data sets (Lemay 2003) like the one used in this study. Partitioning clustering methods separate data into distinct groups. Unlike other partitioning techniques (such as hierarchical clustering), K-means clustering techniques do not produce all possible clusters from the data analyzed. Rather, this technique requires the researcher to decide upon the number of clusters (Dillon and Goldstein 1984). In this analysis, two, 27 three, and four clusters were tested in order to find a clear separation. Three clusters were selected as the most appropriate solution for this analysis based on maximum differences in cluster means. Means and proportions from the three clusters obtained were compared using one-way Analyses of Variance (ANOVA) and Z-tests (alpha=0.05). Each test is described below: 1) Company size - Sales revenues (Question 6, Section 1) and the numbers of full time employees (Question 7, Section 1) were used as indicators for company size. The rationale for including the company size in the analysis is because it was assumed that the size of a company can affect its decision to adopt and maintain forest certification due to economies of scale15. 2) Proportion of sales in international markets by value (Question 4, Section 1) - the rationale for considering this variable is that it is assumed that companies are more likely to seek forest certification if their markets demand it. USA and European markets are reportedly more advanced than Canadian markets in terms of forest certification (UNECE 2004). As a result, sales proportion in international markets could be a reason for companies to be interested in forest certification. 3) Awareness and understanding of forest certification (Question 1, Section 2) - this variable is directly linked with companies' interest in forest certification (Spinazze and Kant 1999). Therefore, this variable was included in the analysis. 4) Proportion of companies interested in forest certification - this was used as a direct indicator of positive attitude towards forest certification. A Z-test was conducted on the proportion of respondents who were not interested in forest certification. A Bonferroni adjustment was applied to the pair-wise proportion comparisons in the Z- test. Therefore, each comparison was conducted at alpha level of 0.017 to maintain an overall alpha level of 0.05. For both the cluster analysis and the one-way ANOVA, missing data were replaced16 by each series mean. Missing data were replaced to achieve maximum sample sizes for the one-way ANOVA analysis. It should also be noted that each of the assumptions of a one-way ANOVA were tested, described below: 1) Normality of sampling distribution , Large data sets with no outliers ensure normality of sampling distributions (Tabachnick and Fidell 2001). According to Mardia (1971), a large data set has a sample size of about 20 in the smallest 1 5 60% of those sampled refused to report on their sales revenues and reported sales revenues were severely positively skewed. As a result, a hypothesis test using one-way ANOVA was not conducted for the variable 'sales revenue'. 1 6 Missing data was replaced based on the suggestion of Tabachnick and Fidell (2001). A pattern of missing data is considered more severe than the amount of missing data. If the pattern is randomly distributed among the data set, this is a less serious problem than if it is not random. Also, if the amount of missing data is less than 5% of the data set, it is considered a minor issue. The data set used in this analysis matched this requirement. 28 sample. This data set was checked for outliers17. Given our sample sizes of more than 20 with no outliers, normality of the sampling distribution is assumed. 2) Independence of data Since the data set was collected at one time, independence of data was assumed. 3) Homogeneity of variance among groups Homogeneity of each variable's variance among groups was tested using Levene's test. Two variables, the number of full time employees and sales proportion in international markets, were transformed to achieve the homogeneity of variance assumption among groups. Two types of data transformations were used for these two variables: a) number of full time employees (x) was transformed to x' = 1 / x, as this variable was severely positively skewed (Tabchnick and Fidell 2001); b) sales proportion in international markets (x%) was transformed to x'= arcsine Vx%, as this represented a binomial distribution (Tabachnick and Fidell 2001). In addition to conducting Levene's test, homogeneity of variance among groups was assumed based on approximately equal sample sizes (sample sizes are relatively equal if they are within a ratio of 4 to 1 or less) arrived at by the cluster analysis (Tabachnick and Fidell 2001). Logistic Regression (LR) Logistic Regression (LR) is a technique that is commonly used to predict group membership (outcome variables) using predictor variable(s) (Tabachnick and Fidell 2001). LR does not require normally distributed predictor variables, equal covariances, or continuous variables (predictors can be either categorical or continuous); requirements of other techniques available for predicting group memberships such as discriminant analysis (Field 2000, Tabachnick and Fidell 2001, Press and Wilson 1978). Binary LR is used when the group membership (or the outcome variable) is a dichotomy. In this analysis, binary logistic regression was used to predict the group membership of respondents that were either interested in forest certification or not. The model that was generated was used to recognize significant predictor variables that affect the group membership. The Stepwise Method of LR was used because the objective of the analysis was to find a model that fits the data set (exploratory) rather than for hypothesis testing (Menard 1995, Field 2000). Both Forward and Backward LR were attempted, however, only Forward results were interpreted as both methods produced identical results. The outcome variable (raw data for the analysis) was developed from responses to Question 4, Section 2 of the mail questionnaire; respondents interested in forest certification (currently involved or plan to involved with forest certification within five years) versus those that were not interested in forest 1 7 Transformed data was checked for outliers after the data transformation. 29 certification. The predictor variables used were: 1) Region (Question 1, Section 1) - the rationale for considering this variable was the assumption that companies are more likely to be interested in forest certification if they operate in a geographic region in which forest certification is popular. Therefore, this variable was included in this analysis to find out whether region has an impact on companies' interests in forest certification. 2) Number of full time employees (Question 7, Section 1) - this variable was included as an indication of company size. Company size is considered to be one factor that could affect a company's interest in forest certification. 3) Proportion of sales to international markets (Question 4, Section 1) - the rationale for considering this variable is as same as the rationale for choosing this variable for one-way ANOVA under cluster analysis (see page 28). 4) Awareness of forest certification (Question 1, Section 2 (all four variables)) - the rationale for considering this variable is as same as the rationale for choosing this variable for one-way ANOVA under cluster analysis (see page 28). 5) Attitudes towards forest certification (Question 3, Section 2) - this variable was considered as a direct indication of a company's interest or disinterest in forest certification. 30 4. RESULTS This section describes the results of the analysis of data obtained from the Canada-wide mail survey. The section begins with a calculation of response rate obtained for the study and an analysis conducted to detect for any non-response bias. The structure below explains how this section is organized and how the results are presented: Section Sub-Section Section Name Description 4.1 Response Rate 4.1.1 Non-response bias 4.2 Respondents' level of involvement with forest certification Status of adoption: 1) currently involved with forest certification; 2) interested in becoming involved in forest certification within five years; and, 3) not interested in forest certification 4.3 Respondents' profiles Information on the sector as a whole 4.3.1 Location 4.3.2 Raw Materials used 4.3.3 Types of Products manufactured 4.3.4 Destination of finished products 4.3.5 Sales revenues 4.3.6 Number of employees 4.3.7 Important issues Indication of how important environmental attributes are to companies. 4.3.8 Level of understanding of basic certification concepts Level of awareness on forest certification in the sector 4.3.9 Level of trust on entities that make environmental claims 4.3.10 Attitudes towards forest certification 4.4 Companies that are not interested in forest certification - their attitudes An attempt to understand why they are not interested 4.5 Companies currently involved and intend to use certification within five years - their attitudes 4.5.1 Reasons for seeking forest certification 4.5.2 Certification schemes 4.5.3 Attitudes toward costs/challenges of forest certification 4.5.4 Attitudes towards benefits of forest certification 4.5.5 Information about purchasing certified raw materials and marketing finished certified products Investigation of attitudes/beliefs/ experiences on the purchasing and marketing of certified products among companies that are either involved or interested in forest certification 4.5.5.1 Purchasing behavior of certified raw materials 4.5.5.2 Marketing certified finished wood products 4.5.6 Companies currently producing certified products Information exclusively from companies who have experience with producing certified wood products 4.6 Cluster analysis of companies An attempt to group total respondents based on their differences in attitudes towards forest certification 4.7 Logistic regression An attempt to understand differences between companies that are either interested or not interested in forest certification 31 4.1 MAIL SURVEY RESPONSE RATE The response rate was computed using the formula: (Complete Surveys) + (Partially Complete Surveys) Response Rate = (Total Mailouts) - (Returns) A total of 1,000 questionnaires were mailed out and 125 surveys were returned as either undeliverable or unwilling to participate in the study. The total number of usable surveys returned was 115. Based on the above formula, the response rate for this study was 13.14%. It is unknown what constitutes a valid separation between low (not acceptable) or high (acceptable) response rates (William and Dennis 2003, Babbie 2000). Some authors suggest, as a rule of thumb, that response rates above 40% are good (Babbie 2000). However, mail survey response rates between 10% and 30% are not uncommon in marketing research (Boyd & Westfall 1972). Since the response rate of this study falls within this range and no non-response bias could be detected (as described in Section 4.1.2), statistical inferences were made from the sample that responded to the survey onto the population of value-added wood product producers across Canada. 4.1.1 Non-Response Bias In an analysis of any survey, statistical inferences must be drawn from the responses that are received, which represent only a subset of the population. The validity of this approach is a question if individuals who do not respond are significantly different (in their attitude or any other particular way) from those who respond. Non-response bias occurs when non-respondents are significantly different from the respondents (Dillman 1978). The respondents in this study were tested for nOn-response bias, a test based on the concept that late respondents' responses may be similar to the responses of sample subjects who did not respond to the survey at all (Wilson 1999, Lambert and Harrington 1990, Armstrong and Overton 1977). The data set was divided into two groups, early responses and late responses, based on the arrival dates of responses. Responses for 1st and 2 n d mail-outs were considered to be early responses, while responses for the 3 r d and 4 t h mail outs were considered to be late responses. Three critical variables were used for this comparison: the mean percentages of wood products (by value) used as raw materials; the mean number of employees; and, the proportion of companies interested in forest certification (either currently involved with or planning to become involved as indicated by the Question 4, Section 2 of the questionnaire). A two tail t-test18 (for mean values) and a Z-test (for the proportion) were used to test the 1 8 When the sample size (n) is equal to or greater than 30, the t-distribution converges with the z-distribution (Bluman 2004). In this test, both sample sizes were greater than 30 (i.e. 50 and 65). Therefore, this test was done using z-distribution values. 32 hypothesis that there is no significant difference between the two population parameters. Table 4.1 summarizes the means and the proportions as selected for each variable, as well as the p-values (a = 0.05) obtained by testing the differences between each set of means and proportions. Table 4.1: Comparison of Proportions and Means between Early and Late Respondents Variable Means of Early Sample n= 50 Means of Late Sample n=65 p -value Reconstituted Wood Products 21.04% 19.02% 0.18 Plywood and Veneer. 10.53% 13.15% 0.12 Softwood Lumber 27.30% 26.48% 0.23 Hardwood Lumber 30.76% 27.17% 0.15 Dimension Parts and Components 2.91% 4.92% 0.11 Other 7.54% 9.55% 0.17 Number of Employees 142.26 168.62 0.20 Proportion Interested in Certification 0.33 0.36 0.19 Based on the resulting p-values, the variable means and the proportion tested between early and late responses are not significantly different. Therefore, there appears to be no significant non-response bias. 4.2 RESPONDENTS' LEVELS OF INVOLVEMENT WITH FOREST CERTIFICATION Question 4 of Section 2 of the questionnaire was aimed at understanding value-added manufacturers' level of involvement with forest certification. The responses were separated into three categories: a) Companies that are currently involved in certification19; b) Companies that are interested in becoming involved in certification within 5 years19; and c) Companies that are not interested in becoming involved in certification. The majority (64.8%) of respondents stated that they were not interested in certification (Table 4.2). Over seventeen percent (17.6%) of the respondents stated that that they were currently involved in certification. Just over five percent (5.3%) of the respondents used chain of custody certification and 7.9% used certified wood without chain of custody certification, while 3.5% stated that they used both. Another 17.6% of respondents mentioned that they plan to become involved in certification within 5 years. Over six percent (6.5%) responded that they would use chain of custody certification within 5 years, while 3.7% stated that they would get involved in certification without chain of custody Categories a and b were analyzed based on the three scenarios introduced previously in Section 2.2.1.2. 33 certification. Approximately seven percent (7.4%) of the respondents stated that they would be involved in both within 5 years. Table 4.2: Respondents' Level of Involvement with Certification Group Frequency n=108 Relative Frequency 95% Confidence Interval A) Companies Currently Involved in Certification 1) with chain of custody 6 5.6% ±0.04% 2) without chain of custody 9 8.3% ±0.05% 3) combination of both 4 3.7% ±0.04% Total group A 19 17.6% ±0.07% B) Companies Interested in Becoming Certified Within 5 years 1) with chain of custody 7 6.5% ±0.05% 2) without chain of custody 4 3.7% ±0.04% 3) combination of both 8 7.4% ±0.05% Total group B 19 17.6% ±0.07% C) Companies Currently Not Interested in Certification Total group C 70 64.8% ±0.09% 4.3 RESPONDENT PROFILES The first section of the survey was intended to profile the respondents. The variables used were: location; types of raw materials used; types of products manufactured; locations of markets (domestic vs. international in terms of sales value); annual sales revenues; numbers of employees; level of understanding of basic certification concepts; level of trust of entities that make environmental claims; and, attitudes towards forest certification. In addition, twelve variables that relate to issues important to companies were also included in this section. These twelve variables were used to evaluate the relative importance given to environmental issues by the value-added wood products manufacturing sector. 4.3.1 Location Respondents were asked to specify the provinces that they operated in (Question 1, Section I). Provinces were collapsed into five regions to ensure a large enough sample size in each region: Western Canada = British Columbia, Alberta; Eastern Canada = Ontario, Quebec; Prairies = Manitoba, Saskatchewan; Maritimes = New Brunswick. Based on this, relative, frequencies of responses for each region were computed (Figure 4.1). 34 Western Canada Eastern Canada Prairies Mari times 0% 10% 20% 30% 4 0 % 50% 60% Relative Frequencies Figure 4.1: Location of Respondents (n=113) The locations of respondents were also analyzed based on respondents' levels of involvement with certification. The majority of certified companies were located in Western Canada (53.0%) (Table 4.3). However, 56.4% of companies in Western Canada were not interested in forest certification. In all regions, the majority of respondents were not interested in forest certification. Table 4.3: Location of Respondent Companies Based on Levels of Involvement with Certification Certified Interested Not Interested (n=19) (n=19) (n=68) Eastern Canada 42.0% 16.0% 39.7% Western Canada 53.0% 73.7% 45.6% Maritimes 0.0% 10.5% 5.9% Prairies 5.3% 0.0% 8.8% Total 100% 100% 100% Eastern Canada (n=38) Western Canada (n=55) Maritime (n=6) Prairies (n=7) Certified 21.1% 18.2% 0.0% 14.3% Interested 7.9% 25.5% 33.3% 0.0% Not Interested 71.1% 56.4% 66.7% 85.7% Total 100% 100% 100% 100% 4.3.2 Raw Materials Used Respondents were asked to indicate their raw material inputs and state the proportions of each by value (Question 2, Section 1). Six categories of raw materials were presented in this question. Means of the proportions (by value) of each raw material type were computed with confidence intervals (Table 4.4). Hardwood and softwood lumber had the highest mean proportions at 28.8% and 26.6%, respectively. 35 Table 4.4: Raw Material Used by Respondents by Value (n=113) Raw Material Mean Proportion 95% Confidence Interval Dimension Parts and Components 4.01% ±2.7 Plywood and Veneer 12.03% ±3.7 Reconstituted Wood Products (included Particleboard, Medium Density Fiberboard, Hardboard) 19.93% ±5.4 Softwood Lumber 26.64% ±6.9 Hardwood Lumber 28.77% ±6.2 Other 8.61% ±4.7 Raw materials under the category other were categorized into five groups: logs, posts and rails, value-added, non-wood hardware, paper and commodity products (timber, firewood and oriented strandboard (OSB)). 4.3.3 Types of Products Manufactured Value-added manufacturers were asked to list their five most common products by sales value (Question 3, Section 1). Based on the responses products were categorized into three groups (Table 4.5). Proportions by sales were computed for each of the three product groupings (Figure 4.2). It can be seen from Figure 4.2 that most responding companies concentrated primarily on the production of value-added goods. Table 4.5: Types of Products Produced by Respondent Companies Value-Added Primary Home Systems Cabinets/counter tops Flooring Millwork Pallets Furniture Doors and windows Upholstered furniture Moldings Stair components Wooden boats Wooden plaques Wood components Architectural wood turning Dowel rods Hardwood burial casters Log shell structures Ply-Bows for lobster traps Machine cut log walls Shipping case Musical instruments Wood components Fences Aspen barrels Round logs Dimension lumber Veneer Plywood Lumber Logs Posts and beams Timbers Log homes Timber framing components 36 > M "3 in >. M « u a. 100% 90% 80% 70% -60% -50% 40% 30% 20% 10% 0% 1st n I I i • Value-Added • Primary • Home Systems 2nd 3rd 4th 5th Product Product Product Product Product Line Line Line Line Line Figure 4.2: Proportion of Sales for the 5 Most Common Product Lines Produced by Respondent Companies 4.3.4 Destination of Finished Products (Domestic vs. International) Respondents were asked about their markets (domestic or international) in terms of sales values (Question 4, Section 1). On average, 66.6% of the total sales was marketed within the Canadian market, while 33.4%o sales was reported as going into international markets (Table 4.6). The most common international market was the United States. Table 4.6: Sales Values of Finished Products in Domestic and International Markets (n=112) Mean of Percentage Sales Value Standard Deviation 95% Confidence Interval Domestic (n=112) 66.6% 34.6% ±6.48 International (n=112) 33 4% 34.6% ±6.48 Markets were also analyzed based on respondents' levels of involvement with certification (Table 4.7). On average, companies that use forest certification reported that 61.0% of their total sales (by value) was marketed within Canada. Companies that were interested in forest certification stated that 54.0% of their sales go into international markets. Companies that are not interested in forest certification reported that 74.0% of their total sales (by value) was marketed domestically. 37 Table 4.7: Sales Values of Finished Products in Domestic and International Markets Based on Level of Involvement with Forest Certification , Mean of Percentage Domestic Sales Value Mean of Percentage International Sales Value Total Certified (n=18) 61.0% 39.0% 100% Interested (n=19) 46.0% 54.0% 100% Not Interested (n=68) 74.0% 26.0% 100% 4.3.5 Sales Revenues for the Past Y e a r (2002-2003) Respondents were asked to state their sales revenues for the past year (2002-2003) (Question 6, Section 1). Only 70 respondents answered this question (45 respondents declined). Stated revenues were categorized into 8 revenue groups and relative frequencies of each group were computed (Figure 4.3). This data showed a positive skewness of 3.8. Median sales revenue was $3.8 million and the mode was $2 million per year. The majority (73%) of the respondents' sales revenues exceeded $1 million, with 32.9% of the respondents having sales revenues of $1.1 million to $5 million per year. lessthan $100,001 to $500,001 to $1.1 to $5 $5.1 to $10 $10.1 to $40 $40.1 to $100.1 $100,000 $500,000 $lmillion million million million $100 million million and over Sales Revenues of Respondents in Year 2002-2003 Figure 4.3: Sales Revenues of Respondents in the year 2002 - 2003 Sales revenues based on companies' involvement with certification were also explored (Figure 4.4). 51% of the respondents with more than $1 million of sales revenues were not interested in certification. Companies that were currently certified and companies that were interested in forest certification tended to be smaller in terms of their sales revenues. 38 25.00 2 20.00 c n a. B a u 15.00 10.00 1 5 ' 0 0 OS 0.00 — — • Certified • Interested • Not Interested n less than $100,001 to $500,001 to $1.1 to $ 5 $5.1 to $10 $10.1 to $100,000 $500,000 $lmillion million million $40 million $40.1 to $100.1 $100 million and million over Figure 4 . 4 : Respondents' Sales Revenues Based on Level of Involvement with Certification 4.3.6 Number of Employees per Company Information on the number of full-time employees was also obtained (Question 7, Section 1). The mean number of employees was 157 (n=ll). Employee numbers were also grouped into ten categories and relative frequencies for each group were computed (Figure 4.5). In this skewed distribution, almost half of the sample (48.73%) had between 0 and 20 employees. The balance of the sample (51.37%) had between 21 and 4400 employees. The mean numbers of employees were also computed separately for certified, interested and uninterested companies (Table 4.8). In this analysis, a confidence interval was not constructed because the variable was severely skewed. Certified companies had the highest mean values (416 employees), followed by interested and uninterested companies (118 and 113 employees, respectively). 39 60% r 50% ^ 40% u a V I 30% L. to | 20% •4! as 10% 0% 48.65% 17.12% 10.81% 5 - 4 1 % 4.50% 4.50% 2.70% 2.70% 1 8 0 % 1 8 0 „ / o • ED E 3 _ , 0-20 21-40 41-60 61-80 81-100 101-200 201-400 401-1000 1001- 2000 & 2000 more Number of Full-Time Employees in Respondents' Companies Figure 4.5: Number of Employees in Respondents' Companies Table 4.8: Number of Employees based on Respondents' Level of Involvement with Forest Certification Certified Interested Not Interested Companies Companies Companies (n=18) (n=18) (n=68) Mean 416 118 113 Median 56.5 16 22 Mode 16 1 Minimum 1 0 0 Maximum 4000 1000 4400 Skewness 3.294 2.710 8.8085 4.3.7 Important Issues to Responding Companies Respondents were presented with 12 issues that relate to business success and were asked to rank the three issues that were most important to them (Question 5, Section 1). This question was used to compare the importance of "everyday" business issues relative to "environmental" issues. Instructions were given to rank the most important issue 1st, as well as the 2 n d and 3 r d most important issues. Arbitrary scores of 3, 2 and 1 were assigned to ranks 1, 2 and 3, respectively, as evaluation points. These evaluation points were computed for each issue. Financial returns and Quality of finished products were considered to be the two most important issues with 239 and 207 evaluation points, respectively (Figure 4.6). The present and future health of forests was considered the 5 t h most important issue with 105 evaluation points. Environmental attributes of raw materials was in the 10lh place with 78 points. Broad national and international public concerns was ranked last with 58 evaluation points. 40 Table 4.9 describes the proportions of times that each variable was ranked 1st, 2 n d and 3 r d by respondents. The present and future health offorests and Environmental attributes of raw materials were ranked 1st approximately 5% of the time (5.2% and 4.9%), while Financial returns was ranked 1st 22.7% of the time. The present and future health offorests and Environmental attributes of raw materials were ranked 2 n d approximately 8% of the time. Financial returns also was ranked 2 n d approximately 8% of the time. financial returns quality of finished products well-being of employees prices of final products the present and future health of forests company image safety of finished products market share community health environmental attributes of raw materials conforming with accepted industry standards broad national and international public concerns 150 Evaluation points Figure 4.6: Respondents' Stated Importance Given to Various Issues Affecting Business Success of a Company Table 4.9: Percentage of Time that Each Issue Affecting Business Success was Ranked 1st, 2 n d and 3 r d % that variable became 1st % that variable became 2nd %that variable became 3rd financial returns 22.7% 8.3% 9.3% quality of finished products 16.8% 12.2% 12.6% well-being of employees 10.5% 7.7% 15.2% safety of finished products 9.1% 2.2% 4.6% company image 7.0% 6.1% 8.6% community health 7.0% 4.4% 3.3% prices of final products 6.3% 12.7% 8.6% the present and future health of forests 5.2% 12.2% 6.6% environmental attributes of raw materials 4.9% 8.3% 4.0% conforming with accepted industry standards 4.2% 8.8% 6.0% market share 3.8% 11.0% 11.3% broad national and international public concerns 2.4% 6.1% 9.9% T O T A L 100% 100%) 100% 41 4.3.8 Respondents' Level of Understanding of Basic Certification Concepts Four variables related to the level of understanding of basic certification concepts were presented to respondents (Question 1, Section 2): level of understanding in certification of forestlands; chain of custody certification for wood products manufacturers; general terms used; and, The Leadership in Energy and Environmental Design (sustainable building rating LEED system). Respondents were asked to indicate their level of understanding for each question using a 5-point interval scale (1= do not understand at all to 5 = completely understand). The mean level of understanding for each variable was computed with 95% confidence intervals. The mean values of each variable was also tested against the mid-point value of 3 (at alpha level of 0.05), which indicates a neutral or unclear level of understanding according to the scale used in the question. The variable, level of understanding of certification of lands for sustainability, was the only variable that was not significantly different from 3 (Table 4.10). Level of understanding of general terms was significantly higher than the neutral point. Level of understanding of chain of custody certification and the LEED system had a significantly lower level of understanding compared to 3. Half of the sample stated their level of understanding of chain of custody certification as either "do not understand at all" or "do not understand". Only 14.0% of the sample stated that they "completely understand" chain of custody procedure. 69.8% of the sample showed no understanding of the LEED system. Table 4.10: Respondents' Level of Understanding of Basic Certification Concepts. Variable Mean Standard Deviation 95% Confidence Interval Terms like "endangered forests" and "old growth forests." (n=113) 3.92 1.1 ±0.20* Certification of forest lands for sustainability (n=l 13) 2.99 1.4 ±0.23 Chain of custody certification for wood product manufacturers(n= 114) 2.61 1.3 ±0.26* The LEED system (n= 113) 2.01 1.1 ±0.21* * = Significantly different from the neutral value of 3 (alpha =0.05) The same variable was also analyzed in relation to respondents' level of involvement with certification. Companies that were already certified showed a higher level of understanding compared with the other two categories. Companies that were not interested in certification had the lowest level understanding on all four variables (Figure 4.7). 42 Level of understanding of the LEED system Level of understanding of terms like "endangered forests" and "old growth forests." Level of understanding of chain of custody certification for wood product manufacurers Level of understanding of certification of forest lands for sustainability 1.9 2 V-1 • Not Interested (n= 68) • Interested (n=19) • Certified (n=18) 8 |2 I 3-4 1 2 3 4 5 1= Do not understand at all 5= Completely understand Figure 4.7: Level of Understanding of Basic Concepts of Forest Certification 4.3.9 Respondents' Level of Trust of Various Entities that Make Environmental Claims Respondents were presented with a list of six entities that make environmental claims and asked to rank them from 1 to 6 according to their level of trust for each entity (with 1 being the most trusted and 6 being the least) (Question 2, Section 2). Arbitrary scores of 6 to 1 were assigned to rank 1 to 6, respectively, as evaluation points. Professional associations were considered the most trusted entity with 457 evaluation points (Figure 4.8). Private certification companies were ranked 2 n d with only 12 evaluation points less than professional organizations (445 points). The wood products industry was ranked 3 r d with 418 points. Environmental organizations were ranked 6 th with 333 points. Table 4.11 describes the percentage of times that each variable was ranked 1st, 2 n d, 3 r d 4 th, 5 th and 6 t h by respondents. Private certification companies were ranked 1st 29% of the time, followed by professional associations at about 26% of the time. 43 Professional Associations A Private Certification Company The Wood Products Industry The Provincial Government The Federal Government Environmental Organizations 1 1 1 1 1 457 445 418 371 365 53 1 50 100 150 200 250 300 350 Evaluation points 400 450 500 Figure 4.8: Respondents' Trust for Various Entities that Make Environmental Claims Table 4.11: Percentage Value an Entity was Ranked 1st, 2 n d , 3 r d , 5 t h and 6 t h by Respondents % that variable ranked 1st % that variable ranked 2nd % that variable ranked 3rd % that variable ranked 4tht % that variable ranked 5th % that variable ranked 6th Private certification company 29.4% 17.3% 16.2% 10.8% 17.1% 8.5% Professional associations 25.9% 23.0% 15.6% 14.7% 8.5% 7.3% Wood products industry 15.3% 18.7% 18.4% 18.9% 18.3% 7.3% Environmental organizations 11.8 13.0% 11.2% 23.0% 12.2% 39.0% Federal Government 9.4% 13.7% 20.1% 9.5% 24.4% 20.7% Provincial Government 8.2% 14.4% 18.4% 23.0% 19.5% 17.1% Total 100% 100% 100% 100% 100% 100% 4.3.10 Respondents' Attitudes Towards Forest Certification Respondents were presented with a list of 11 variables that represented their company's attitude towards forest certification (Question 3, Section 2). Respondents were asked to indicate their level agreement with each statement based on a 5-point Likert scale. For each statement, a mean value was computed with 95% confidence intervals (Figure 4.9). The mean value of each statement was also tested against a neutral point, which is agreement level 3 on the Likert scale. 44 My company believes that there is a need for environmental certification of tropical forests. My company has top management who support environmental improvement. My company believes that environmental certification can reduce the threat to forests. My company has made organizational changes to accommodate an environmental commitment. My company believes that being certified would effectively differentiate their company from their competitors. My company believes that Canadian forests are threatened. My company believes that consumers will demand certified wood products in the future. My company would pay a premium for certified wood products or raw materials. My company believes that selling certified wood products will improve our company's profitability. My company believes that our customers will pay a premium for environmentally certified wood products. My company believes that using certified wood will improve our company's production processes. 3.76 (SD=0.84) H - l 3.71 (SD=0.98) I——I 3.41 (SD=1.04) I——I 3.32 (SD=0.97) M 4 — I 3.20(SD=1.13) . I——I 3.04 (SD= 1.07) I——I 3.00 (SD= 1.07) h 2:75 (SD=1.06) I-2.55 (SD=1.0) H 2.51 (SD=1.12) h 2.27(SD=0.93)-I 2 3 4 Strongly Disagree (1) - Strongly Agree (5) Figure 4.9: Respondents' Attitudes Towards Forest Certification (Means with 95% confidence intervals are shown) * = Significantly different from the neutral value of 3 (alpha =0.05) 4.4 ATTITUDES OF RESPONDENTS WHO WERE NOT INTERESTED IN FOREST CERTIFICATION Respondent companies that stated that they were not interested in certification were asked to indicate reasons for not being interested (Question 4, Section 2). A list of eight reasons was presented with one open-ended response category. Frequencies and relative frequencies for each reason were computed (Figure 4.10). Almost 25% of the respondents indicated that their customers were not demanding certified product as the reason for not being interested in forest certification. Lack of information on certification and lack of awareness of certification were chosen as the 2 n d and 3 r d reasons, 45 with values of 15.7% and 14.2%, respectively. The cost of certification was cited as a reason 8.63% of the time. Customers are not demanding certified products. Lack of information about forest certification. We do not know much about forest certification. It will not bring any benefits to my company. We already use wood from sustainably managed forests. Lack of incentives from government. Implementation costs of certification are too high. We do not agree with the idea of forest certification. 24.9% 15.7% 14.2% 13.7% 11.2% 9.6% 8.6% 2.0% 0% 5% 10% 15% 20% 25% 30% Proportion of Relative Responses Figure 4.10: Attitudes of Respondent Companies' that were not Interested in Certification 4.5 ATTITUDES OF COMPANIES CURRENTLY INVOLVED IN FOREST CERTIFICATION AND COMPANIES THAT INTEND TO USE CERTIFICATION WITHIN FIVE YEARS Of the total respondents (n=108), 35.2% were either currently involved with or interested in becoming involved in certification within five years (n=38). These respondents were asked to complete the third section of the questionnaire. 4. 5.1 Respondent's Reasons for Seeking Forest Certification Respondents who stated that they were currently involved in certification or were interested in becoming involved in certification within five years were asked to rank the three major reasons for participating in certification, with 1 being the most important reason and 3 being the 3 r d most important reason (Question 1, Section 3). Five reasons were presented with an open-ended response category to allow for any other reasons. Arbitrary scores of 3 to 1 were assigned to the ranks 1 to 3, respectively, as evaluation points. Figure 4.11 summarizes the total evaluation points for each reason. The two most important reasons for participating in certification were that respondents cared about the present and 46 future health of forests (88 points), and that they believed that environmental purchasing is going to be a standard practice in the future (87 points). The third most important reason for respondents to seek certification was to gain benefits from certification (68 points). Table 4.12 describes the percentage of time that each variable was ranked 1st, 2 n d, and 3 r d by respondents. Concern about the present and future health of forests was ranked 1st 38% of the time, followed by a belief that environmental purchasing is going to be a standard practice in the future (29% of the time). Because I care about the present and future health of forests. Because I believe that environmental purchasing is going to be a standard practice in the future. In order to obtain the benefits that certification provides. In order to minimize pressure from environmental groups. Because I am a member of an association in which certification is a mandatory requirement. Other 0 10 20 30 40 50 60 70 80 90 100 Evaluation Points Figure 4.11: Reasons for Respondent Companies to Seek Certification Table 4.12: Percentage of Time that Each Reason for Seeking Forest Certification was Ranked 1st, 2 n d , 3 r d %that variable ranked 1st % that variable ranked 2 n d %> that variable ranked 3 r d Because I care about the present and future health of forests. 38.0% 15.0% 9.5% Because I believe that environmental purchasing is going to be a standard practice in the future. 29.3% 28.3% 4.8% In order to obtain the benefits that certification provides. 13.8% 31.7% 14.3% In order to minimize pressure from environmental groups. 10.3% 16.7% 33.3% Because I am a member of an association in which certification is a mandatory requirement 5.2% 6.7% 35.7% Other* 3.5% 1.7% 2.4% Total 100% 100% 100% *Other reasons as indicated by respondents were to get into the LEED system, ministerial obligations in New Brunswick, and support of small scale forest operators. T 88 187 ' 68 152 132 9 47 4.5.2 Respondents' Involvement with Certification Schemes Respondents were asked to indicate the certification schemes they were currently involved with or going to be involved with within five years (Question 2, Section 3). Respondents were presented with a list of six schemes and an "other" option. Relative frequencies of responses were computed for each certification scheme; n=62 (Figure,4.12). According to the results, 25.8% of respondents were either currently involved or planned to become involved with the Forest Stewardship Council (FSC). Twenty-one percent of respondents are currently or planned to become involved with the Canadian Standard Association (CSA). Over nineteen percent (19.4%) of respondents had not decided which certification scheme they would be using. When this result was compared with the percentage of respondents who stated that they were interested in becoming involved with certification (see Table 4.2), 48% of this group (n=19) were currently undecided on the certification schemes they would likely use. Forest Stewardship Council (FSC) Canadian Standards Association (CSA) Don't Know Sustainable Forestry Initiative (SFI) Other * Pan European Forest Certification (PEFC) American Tree Farm System (ATFS) 25.8% 21.0% 19.4% 16.1% 9.7% 4.8% 3.2% 0% 5% 10% 15% 20% Proportion of Responses 25% 30% Figure 4.12: Respondents Involvement with Forest Certification Schemes •Other certification schemes mentioned were CFIA, ISO 14001, Smartwood, Alberta Forest Products Associations' (AFPA) Forest Care program. 4.5.3 Respondents' Opinions on Costs / Challenges of Forest Certification Respondents were presented with a list of 13 issues relating to certification and were asked to choose issues that they thought of as the most difficult issues with respect to forest certification (Question 3, Section 3) (n=195). Most respondents (14.9%) saw costs required to become certified as one of the main challenges of certification (Figure 4.13). Not enough market demand was considered to 48 be one of the most difficult issues by 11.3% of respondents. Lack of certified suppliers and insufficient price premiums were mentioned by 10.3% and 9.7% of respondents, respectively. costs required to become certified not enough market demand lack of certified suppliers insufficient price premiums lack of information on certification increased administrative work lack of certified wood species lack of government collaboration lack of knowledgeable personnel too many schemes to choose from low credibility with customers not enough resources for marketing loss of autonomy 0% 2% 4% 6% 8% 10% Relative Frequency 12% 14% 16% Figure 4.13: Respondents' Opinions on the Costs/Challenges of Forest Certification 4.5.4 Respondents' Attitudes Towards Benefits of Forest Certification Respondents were presented with a list of fourteen benefits that they could derive from forest certification (Question 4, Section 3). Respondents were asked to indicate their level of agreement with the likelihood that certification could bring these benefits using a 5-point Likert scale. Mean values for each statement were computed with standard deviations and 95% confidence intervals (Figure 4.14). Mean values of each statement were also tested against a mean value of 3, which represents a neutral attitude for each variable. Respondents' attitudes towards the likelihood of increased market access, better public relations, and satisfaction in ensuring the sustainability of Canadian forests as a result of certification was significantly higher than a neutral attitude. Attitudes towards the likelihood of increased profitability, better inventory control, waste reduction, and increased overall efficiency was significantly 49 lower than the neutral point on the scale. Other variables showed no significant differences in respondents' attitudes from a neutral level. 4.0(SD=0.77) I 1 1 * • 3.9 (SD=0.96) I 1 1 * 3.5 (SD=0.80) . I — H 1 * 3.4(SD=1.01) I 1 1 3.3(SD=1.12) I | 1 3.3(SD=1.05) 1-^—| 1 3.1 (SD=1.98) 1=1 1 3.0(SD=1.13) 1 3.0 (SD=0.90) ^=1 1 2.7(SD=1.02) I 1 1 2.6(SD=1.17) I | 1 2.6(SD=1.18)| 1 11* 2.5(0.93) ' I 1 1 j 2.5 (SD=1.06)I 1 1 * i i i ! 1 2 3 4 5 Not at a l l L i k e l y (1) - V e r y L i k e l y (5) Figure 4.14: Respondents' Attitudes towards Potential Benefits of Certification (Means with 95% confidence intervals are shown) * = Significantly different from the neutral value of 3 (alpha =0.05) Respondents were also given an open-ended question to state any other benefits from certification that were not previously listed. Eleven respondents answered this question, and they were categorized into four groups of benefits: 1) certification helps increase the morale of employees (n=2); 2) certification brings marketing advantages (product differentiation and market access to European and USA markets) (n=5); 3) certification helps to have a better environmental management system (n=2); and, 4) certification helps to get into the LEED system (n=2). better public relations /company image satisfaction in ensuring the sustainability of our forests increased market access improved communication with suppliers reduced pressure from environmental groups improved communication with customers clearer information to investors higher price premiums enhanced understanding of consumer markets improved communication with government waste reduction increased overall efficiency increased profitability better inventory control 50 4.5.5 Respondents' Information on Purchasing Certified Raw Materials and Marketing Finished20 Certified Products Questions 6 to 20 (Section 3) of the survey were used to profde companies who were either involved or interested in certification based on their purchasing behaviors of certified raw materials and the marketing of finished certified wood products. 4.5.5.1 Purchasing Behaviour for Certified Raw Materials Six variables were used to gather information on the purchasing of certified raw materials by manufacturers: 1) origin of raw materials (Question 7); 2) sources of certified raw materials (Question 6); 3) percentage of total purchase costs for certified raw materials (Question 8); 4) price premiums for certified raw materials (Question 9); 5) level of engagement in purchasing certified raw materials (Question 10) (i.e. have they requested that their suppliers become certified); and, 6) problems in purchasing certified wood (Question 11). The highest proportion of respondents (37%) stated that Canadian public land was the origin of raw materials used in their production (Table 4.13). Another 31.4% stated that their raw materials originated from Canadian private lands, while 16.3% stated that wood came from international sources. Most (45%) respondents stated that their certified raw material supplies came directly from Canadian sources and 27%> specifically mentioned that they sourced certified wood from Canadian brokers and wholesalers (Table 4.14). Respondents stated that, on average, they spend 27.6% of their total raw material costs on purchasing certified raw materials (Table 4.15). The reported projected cost within one year was expected to increase to 31%. The reported average price premium on certified raw materials (would pay or plan to pay) was 7.1% (Table 4.16). Of 19 certified value-added companies, 63% stated that they did not request that their suppliers be certified, but 11% said that they would in the future (Table 4.17). Out of 19 companies that were interested in certification, only 15.8% mentioned that they would ask their suppliers to become certified in the future. Respondents were asked to state their opinion on issues related to purchasing certified wood. Six issues were presented, and they were asked to rank the three most challenging issues. Arbitrary scores of 3, 2 and 1 were assigned to the 1st, 2 n d and 3 r d ranks, respectively, and evaluation points were computed for each issue (Figure 4.15) Challenges with the consistent supply of certified wood was ranked first, with 83 points and high prices of certified wood was ranked second with 72 points. 2 0 Finished products are products that are ready to be sold directly to consumer segments, such as furniture, doors and windows. 51 Table 4.13: Origin of Raw Materials Reported by Companies that are Certified or Interested in Certification Origin Frequency Relative Frequency Canadian public land 32 37.2% Canadian private land 27 31.4% Canadian industrial land 9 10.5% Canadian non-industrial land 1 1.2% International sources 14 16.3% Do not know 3 3.5% . Total 86 100% Table 4.14: Sources of Certified Raw Materials Reported by Companies that were Certified or Interested in Becoming Certified Source Frequency Relative Frequency Directly from domestic sources 29 45.3% Directly from international sources 11 17.2% From Canadian brokers/wholesalers 17 26.6% From international brokers/wholesalers 5 7.8% Other sources 2 3.1% Total 64 100% Table 4.15: Mean Certified Raw Materials Purchasing Cost as a Percentage of Total Costs Mean Percentage value Currently (n=31) 27.6 In one year (n=27) 31.9 Table 4.16: Mean Price Premiums Paid for Certified Raw Materials Mean of Price Premium Companies currently certified (n=12) 4.8% Companies intending to become certified within five years (n=l 1) 9.4% Total Average 7.1% Table 4.17: Level of Involvement in Purchasing Certified Raw Materials Certified Interested Companies Companies % that have requested their suppliers to become certified 26.0% n=5 5.3% n=l % that have not requested their suppliers to 63.2% 78.9% become certified n=12 n=15 % that will request their suppliers to be 10.5% 15.8% certified in the future n=2 n=3 Total 100% 100% 52 Consistent supply Overpriced Product quality Contract fulfillment Punctual delivery Transportation costs 44 42 34 54 72 83 10 20 30 40 50 60 70 Evaluation Points 80 90 Figure 4.15: Current and Expected Challenges of Purchasing Certified Wood Supplies Respondents were presented with an open-ended question that allowed them to mention other challenges associated with purchasing certified wood raw materials (Question 12, Section 3). Eleven respondents to this question brought up the following issues: SFI and FSC disharmony; increasing certification costs and low customer demand; not enough information on certified wood suppliers; difficulties with finding certified wood in the market; lack of knowledge on certification in general; and, lack of available species. 4.5.5.2 Marketing Certified Finished Wood Products Information pertaining to the marketing of certified value-added wood products was also gathered. Questions 13 to 18 (Section 3)2' used six variables related to marketing strategies for certified value-added wood products: 1) the labeling of certified products (Question 13); 2) choosing customers (Question 13); 3) price premiums received (Question 15); 4) methods of providing information to customers on forest certification (Question 16); 5) types of customers for certified finished products (Question 17); and, 6) destination of finished certified products (Question 18). Questions 19 and 20 (Section 3) asked respondents about: 1) current information sources on forest certification for manufacturers (Question 19), and 2) expected future services from certifiers (Question 20). 2 1 Question 14 of Section 3 was not analyzed due to low number of responses. 53 Most respondents (46.9%) stated that they do not, nor ever intend to, label their certified products as certified (Table 4.18). Over thirty-four percent (34.4%) stated that they currently do label their certified products as certified. When asked about choosing customers, 68.8% of respondents stated that they do not care about their customers' environmental policies (Table 4.19). Only 3% of the respondents mentioned that they sell their certified products to customers who buy only certified wood products. Of the companies currently involved with forest certification, 24% stated that they did not use any information materials to inform customers on certification (Table 4.20). Thirty-six percent mentioned that they used brochures to inform customers about certification. The majority (63.2%) of companies that were interested in certification stated that they did not use any materials to inform customers about certification. Direct customers had the highest frequency (26.8%) as the most likely buyers of certified finished products (Table 4.21), while department / furniture stores had the lowest frequency (1.4%). Regarding the destination of certified value-added wood products, it was reported that, on average, 63.5% of certified products were marketed or would be marketed internationally, with 34.8% remaining in Canada (Figure 4.16). Table 4.22 summarizes the types of information sources that have helped respondents to gain an understanding about forest certification. Approximately 29% (29.3%) of respondents stated that they learnt about forest certification through business contacts, while 26.7% of respondents stated that it was through trade journals. Table 4.23 summarizes respondents opinions on areas where there is lack of information with regards to forest certification. Over thirty-four percent (34.3%) of respondents felt that they needed more advice on the public promotion of forest certification. Thirty percent of respondents felt that they lacked information on the certification process in general. Over twenty-five percent (25.7%) felt that they needed advice on chain of custody of certification. Table 4.18: Proportion of Respondents Selling Labeled Certified Products Frequency Relative Frequency All certified products are labeled as certified 11 34.4% Some certified products are labeled as certified 6 18.8% No certified products are labeled as certified 15 46.9% Total 32 100% 54 Table 4.19: Proportion of Sales Going to Certified and Non-certified Buyers Frequency Relative Frequency Sell only to certified wood products buyers. 1 3.1% Sell to any customer, regardless of their environmental policy. 22 68.8% A combination of the above two. 9 28.1% Total 32 100% Table 4.20: Types of Information Materials Used by Respondents to Inform Customers about Certification Types of Information Materials Certified Companies Interested Companies Frequency Relative Frequency Frequency Relative Frequency Signs 3 12.0% 3 15.8% Product Tags 4 16.0% 2 10.5% Brochures 9 36.0% 2 10.5% No information material provided 6 24.0% 12 63.2% Other* 3 12.0% 0 0.0% Total 25 100.0% 19 100.0% *Other types of information materials stated were: product guides, websites, and customer tours. Table 4.21: Types of Customers for Certified Finished Products Types of Customers Frequency Relative Frequency Direct customers 19 26.8% Wholesalers 13 18.3% Other retailers 6 8.5% Builders and developers 14 19.7% Home centers / hardware stores 9 - 12.7% Custom woodworking jobs 6 8.5% Department / furniture stores 1 1.4% Other* 3 4.2% Total 71 100% *Other types mentioned were: Forest Departments, government projects and manufacturers. Domestic, 34.8% x ^ ^ S S I H H ^ I H ^ ^ ^ International, ^ ^ ^ ^ 63.5% Figure 4.16: Markets for Certified Finished Products (n=27) 55 Table 4.22: Sources of Information on Forest Certification for Value-Added Manufacturers Frequency Relative Frequency Personal contacts 11 14.7% Certifying agents 12 16.0% Trade journals 20 26.7% Business contacts 22 29.3% Other* 10 13.3% Total 75 100% *Other sources stated were: customers, trade seminars, logging operations, trade associations, conferences, direct contacts with certifiers, the internet and news. Table 4.23: Areas Where There is a Lack of Information Regarding Certification According to Respondents Frequency Relative Frequency Chain of custody advice 18 25.7% Internal environmental auditing 5 7.1% Information on certification process 21 30.0% Public promotion 24 34.3% Other* 2 2.9% Total 70 100% *Other services stated were: support in market place and advocacy to respond to claims of environmental organizations. 4.5.6 Information on Companies Currently Producing Certified Value-Added Products Questions 21 through 25 (Section 3) gathered information on manufacturers' experiences with producing certified value-added products during the year 2002 -2003. There were only eight (seven for the 25 th question) respondents to these five questions. The variables used were: changes in certified products sales during last year (Question 21); unexpected benefits and drawbacks due to certification (Question 22 and 23); future expectations with regards to sales of certified wood products (Question 24); and, the decision to stay in the business of selling certified wood products (Question 25). Five respondents stated that their certified products sales did not change during the last year (Table 4.24), while three respondents stated that, on average, sales of certified products increased by 13% during the year. Seven expected that their sales of certified products would increase in the future. Six stated that they did not experience any unexpected benefits or drawbacks as a result of certification (Table 4.25). Respondents were asked whether they plan to continue to sell certified wood products; there were seven respondents to this question and all responded that they would. Table 4.24: Experiences with Producing Certified Wood Products (Increase/Decrease) Increase Decrease Stay the same Total Changes in certified wood products sales within the last year 3 0 5 8 Expectation on certified wood sales in the future 7 0 1 8 56 Table 4.25: Experiences with Producing Certified Wood Products (Yes/No) Yes No Total Unexpected Benefits/Costs Unexpected benefits due to certification 2 6 8 1) Put on home centers preferred supplier list 2) Public acknowledgement Unexpected drawbacks due to certification 2 6 8 1) Higher marketing costs 2) Delays in having certification systems in place Plans to continue to sell certified wood. 7 0 7 4.6 CLUSTER A N A L Y S I S OF RESPONDENTS B A S E D O N THEIR ATTITUDES TOWARDS CERTIFICATION A cluster analysis was conducted to identify groups of companies that are most likely to seek forest certification. The raw data used for this analysis was collected from Question 3, Section 2 of the survey (presented to all respondents), which comprised eleven attitudinal variables on a five-point Likert scale. A K-Means clustering procedure using SPSS 11.0 was undertaken and is described in this section. Three clusters were selected as it provided the clearest separation of respondents' attitudes. Table 4.26 presents the final cluster centers with means of each cluster, while Table 4.27 presents distances between final cluster centers. Table 4.26: Final Cluster Centers Cluster My company... 1 (n=50) 2 (n-44) 3 (n=21) ..believes that Canadian forests are threatened. 3 4 3 ..believes that environmental certification can reduce the threat to forests. 3 4 3 ..believes that there is a need for environmental certification of tropical forests. 4 4 3 ..has top management who support environmental improvement. 4 4 3 ..has made organizational changes to accommodate an environmental commitment. 3 4 3 ..would pay a premium for certified wood products or raw materials. 2 : 4 2 ..believes that our customers will pay a premium for environmentally certified wood products. 2 3 1 ..believes that consumers will demand certified wood products in the future. 3 4 2 ..believes that being certified would effectively differentiate our company from Our competitors. 3 4 2 ..believes that selling certified wood products will improve our company's profitability. 2 3 1 ..believes that using certified wood will improve our company's production processes. 2 3 1 Cluster Center Means 2.82 3.73 2.18 57 Table 4.27: Distances between Final Cluster Centers Cluster 1 2 3 1 2.508 3.127 2 2.508 5.348 3 3.127 5.348 Analyses of each cluster centre mean value helps to characterize the three clusters more clearly: • With a mean of 2.18, Cluster 3 consisted of companies that had negative attitudes towards certification and did not believe that certification would work for them in the future; • With a mean value of 3.73, Cluster 2 consisted of companies that had relatively positive attitudes regarding certification and they felt that certification could lead to business opportunities; • With mean of 2.82, Cluster 1 consisted of companies that had attitudes between cluster 2 and 3, but with more positive attitude towards certification than cluster 3. However, they were doubtful about whether customers would demand certified products in the future or if certification could work as a product differentiation tool. Companies in all three clusters generally had a negative belief relating to certification's ability to help increase company profits or improve production processes. 4.6.1 O n e - W a y A N O V A Analysis on Three Clusters In an attempt to profile respondents in each cluster, one-way analyses of variance were conducted on three variables22: 1) the proportions of finished products (by sales value) in international markets; 2) the level of awareness and understanding of basic certification concepts (4 variables); and, 3) the number of full time employees. Upon testing the homogeneity of variance (Table 4.28), a one-way ANOVA analysis was used to test the null hypothesis that there was no significant difference between the means of each variable in the three clusters (at alpha level 0.05). Results are summarized in Table 4.29. The results showed that none of the means was significantly different in three clusters. 2 2 The rationale for selecting these variables was discussed in detail in Section 3.5, Data Analyses - Cluster Analysis 58 Table 4.28: Test of Homogeneity of Variances Levene Statistic df l df2 Significance NEWFULLT 2.176 2 112 .118 SINSQIN 1.719 2 112 .184 ANSA .807 2 112 .449 ANSB .156 2 112 .856 ANSC 2.502 2 112 .087 ANSD .938 2 112 .395 N E W U L L T = 1/X transformation of number of full time employees (why and how this transformation was done was explained in the Section 3.5, Data Analysis (page 29) SINJSQIN = Arcsin transformation of percentages of finished product values (by sales) in international markets (why and how this transformation was done was explained in the Section 3.5, Data Analysis (page 29) A N S A = How well does your company understand certification of forest lands for sustainability? A N S B = How well does your company understand chain of custody certification for wood products manufacturers? A N S C = How well does your company understand terms like "endangered forests" and "old growth forests"? ANSD = How well does your company understand the LEED system (The Leadership in Energy and Environmental Design sustainable building rating system)? Table 4.29: One-way A N O V A for Variables Sum of Squares Df Mean Square F Significance NEWFULLT Between Groups .256 2 .128 1.533 .220 Within Groups 9.366 112 .084 Total 9.622 114 SIN_SQIN Between Groups .043 2 .022 .091 .913 Within Groups 26.543 112 .237 Total 26.586 114 ANSA Between Groups 1.383 2 .691 .431 .651 Within Groups 179.608 112 1.604 Total 180.991 114 ANSB Between Groups 2.985 2 1.492 .739 .480 Within Groups 226.033 112 2.018 Total 229.018 114 AWNSC Between Groups 2.592 2 1.296 1.070 .347 Within Groups 135.692 112 1.212 Total 138.283 114 ANSD Between Groups 4.920 2 2.460 1.912 .153 Within Groups 144.071 112 1.286 Total 148.991 114 59 4.6.2 Z-Tests Comparing Proportions of Companies that are Not-Interested in Forest Certification A Z-test (at alpha level at 0.05) was used to compare the proportions of respondents who were not interested in certification among three clusters. The results are summarized in Table 4.30. The proportion of companies that were not interested in certification was significantly different (higher) in cluster 3 than in cluster 2. Table 4.30: Z-test comparing Proportions of Companies that are Not Interested in Certification in Three Clusters Z-Test Z-Critical Alpha Level Significant Difference Cluster 1 x 2 1.18 ±2.39 0.017 No Cluster 1x3 2.32 No Cluster 2 x 3„ 2.98 Yes 4.6 3 Profiling of Clusters Even though the one-way ANOVAs indicated an absence of any significant difference between the three clusters based on sales percentage in international markets, number of employees, and understanding of basic certification concepts, these three variables were used, in addition to percentage of companies interested in forest certification, to profile three clusters in relation to one another (Table 4.31). Sales revenue was also used in profiling clusters, even though this was not tested using a one-way ANOVA (because only 70 respondents answered this question and the stated revenues showed a skewness of 3.8 as explained in Section 4.3.5., Sales Revenues for the Past Year). 60 Table 4.31: Characteristics of Clusters Cluster 1 (n=50) Cluster 2 (n=44) Cluster 3 (n=21) How well does your company understand certification of forest lands? * 3.06 3.02 2.76 How well does your company understand chain of custody certification for wood products manufacturers? * 2.74 2.64 2.29 How well does your company understand terms like "endangered forests" and "old growth forests"? * 3.94 4.05 3.62 How well does your company understand the LEED system (The Leadership in Energy and Environmental Design sustainable building rating system)? * 2.10 2.11 1.57 Mean Number of Employees 300 28% of the sample consisted of companies with more than 100 employees, maximum was 4400 37.5 9% of the sample consisted of companies with more than 100 employees, maximum was 240 67.14 19% of the sample consisted of companies with more than 100 employees, maximum was 180 Mean Value of Sales Revenue 14.9 million 44% of the sample did not answer this question 29.4 million 32% of the sample did not answer this question 41.0 million 43% of the sample did not answer this question Sales percentage in international markets (Average) 34.0% 33.5% 31.5% Percentage of companies interested in forest certification 36.0% 48.0% 9.5% * 1= do not understand at all; 5= completely understand Cluster 3 can be described as consisting of relatively small companies with the lowest level of understanding regarding basic certification concepts. Cluster 3's sales proportion in international markets and percentage of companies interested in forest certification is relatively low (31.5% and 9.52%). Cluster 2, which showed the most favourable mean value for attitudes towards forest certification (Table 4.25), can be described as consisting of medium to large size companies with higher levels of understanding of certification concepts than cluster 3. This cluster had the highest percentage of companies that are interested in forest certification (48%); significantly higher than Cluster 3. Cluster 1, which showed a neutral attitude towards forest certification (mean of 2.82), can be described as consisting of medium to large companies with higher levels of understanding regarding concepts of forest certification than the other two clusters. This cluster had an equal percentage of sales in international markets as Cluster 2 (34%). The percentage of companies interested in forest certification was 36%>, the second highest among the three clusters. 61 4.7 LOGISTIC REGRESSION (LR) OF COMPANIES BASED ON INTEREST IN FOREST CERTIFICATION Logistic regression (LR) was carried out to identify variables that influence companies in being interested (or not) in forest certification. Respondents who were either currently certified or interested in becoming certified within 5 years were given the score of 1 and respondents who reported that they were not interested in certification were given the score of 2. The SPSS 11.0 default is to recode a variable from 1 and 2 to 0 and 1 (Table 4.32). As a result, in this analysis, the probability of an outcome occurring is equal to probability of a company being not interested in certification. Predictor (independent) variables that were used in this analysis include: region (Question 1, Section 1); number of full time employees (Question 7, Section 1); sales proportion going into international markets (Question 4, Section 1); awareness of forest certification (Question 1, Section 2); and, attitudes towards forest certification (Question 3, Section 2). Table 4.32: Dependent Variable Encoding Original Value Internal Value 1 0 2 1 Results from the LR suggest that two variables significantly affect a company's desire to participation in forest certification: manufacturers' awareness of chain of custody; and, manufacturers' belief that forest certification can differentiate firms (Table 4.33).. Table 4.33: Variables Significant in Predicting Group Membership B S.E. Wald Df Sig. Exp(B) 95.0% Cl.for EXP(B) Lower Upper Step 1(a) BELEIl -1.319 .304 18.895 1 .000 .267 .147 .485 Constant 5.117 1.119 20.889 1 .000 166.773 Step 2(b) BELEI_1 -1.260 .304 17.185 1 .000 .284 .156 .515 ANSBJ -.570 .178 10.201 1 .001 .566 .399 .802 Constant 6.459 1.258 26.377 1 .000 638.241 (The addition of variables was tested at an alpha level of 0.05, while the removal of variables was tested at 0.1, the defaultinSPSS.il). a Variable(s) entered on step 1: b Variable(s) entered on step 2: BELEI_1 = My company believes that being certified effectively differentiate our company from our competitors (Likert scale of 1 to 5: 1= strongly disagree, 5= strongly agree). ANSB_1 = How well does your company understand chain of custody certification for wood products manufacturing? (Interval scale of 1 to 5: 1= do not understand at all, 5= completely understand). 62 According to Table 4.33, the variables BELE_1 and AWNSB were added to the model at the end of step two, and their coefficient (B) values are -1.260 and -0.570. Significant Wald statistics (0.000 and 0.001) for the two variables indicate that coefficients of both the variables are significantly different from zero, meaning that the two predictors significantly contribute to the prediction of outcomes (group membership). Exp(B) in this analysis can be interpreted as: 1) as a company's understanding of chain of custody increases along the interval scale, the odds of that company being interested in forest certification increase by 43.4% for each step up the interval scale (or the odds of that company not being interested in forest certification decrease by 56.6% for each step up the scale ); 2) the more a company agrees that being certified effectively differentiates their company from their competitors, the higher the odds are (by 71.6% for each step up the interval scale) for that company being interested in forest certification (or the odds of that company be not interested in forest certification decreases by 28.4% for each step up the interval scale). 4.7.1. Models ' Significance in Predicting Outcome Variable -2Log Log likelihood (-2LL) values in Table 4.34 indicate a strong data fit in the model used. Chi-square values (Table 4.35) indicate that step two increases the model's ability to predict group membership (significant value of 0.001). In addition, Table 4.36 shows that the model has a good overall accuracy rate of 76.5% in classifying observations into two groups. Table 4.34: Model Summary Step -2 Log likelihood Cox & Snell R Square Nagelkerke R Square 1 119.207 .234 .321 2 107.805 .306 .420 Table 4.35: Omnibus Tests of Model Coefficients Chi-square df Sig. Step 1 Step 30.613 1 .000 Block 30.613 1 .000 Model 30.613 1 .000 Step 2 Step 11.402 1 .001 Block 42.015 2 .000 42. .0 2 odel 015 00 63 Table 4.36: Classification Table When Two Variables are Included in the Model Observed Predicted BOXA Percentage Correct 1 2 Step 1 BOXA 1 32 9 78.0 2 22 52 70.3 Overall Percentage 73.0 Step 2 BOXA 1 25 16 61.0 2 11 63 85.1 Overall Percentage 76.5 a The cut off value is .500 5. DISCUSSION Results from mail questionnaires convey a wide range of information regarding Canadian value-added manufacturers' views on forest certification. Findings of this study can be used to make inferences on manufacturers' adoption of forest certification in the Canadian value-added wood products sector. In this chapter, the results of the research are discussed in three sections as defined by the objectives of the study to determine: 1. Current and anticipated levels of adoption of forest certification by Canadian value-added wood products manufacturers; 2. Current level of knowledge and awareness among these manufacturers about forest certification; and, 3. Current attitudes towards forest certification. 5.1 ADOPTION OF FOREST CERTIFICATION BY VALUE-ADDED MANUFACTURERS 5.1.1 Current Status and Possible Factors affecting the Adoption Forest certification is not used widely in the Canadian value-added wood products sector. According to the results of mail questionnaires, only 35.0% of the Canadian value-added wood products manufacturing sector will support forest certification as a marketing tool within the next five years - one half of these respondents is currently involved in forest certification and the other half is interested in becoming involved with forest certification within the next five years. Only 5.5% of the total respondents currently use chain of custody (COC) certification, but this percentage is expected to increase by another 6.5%> within five years. At present, the majority (65.0%) of respondents in the sector is not interested in forest certification. The varying interest in certification among members of the value-added sector leads to the question, what factors affect whether manufacturers are interested in forest certification or not? Three possible explanations for why the majority of respondents is not interested can be drawn from the results of this study: 1) the traditional nature of marketing strategies; 2) the absence of a strong market or any other compliance pressures; and 3) a lack of knowledge (described in Section 5.2). Each is discussed in turn. Environmental marketing is a recent development that has been integrated into mainstream business practices (Menon and Menon 1997). According to this notion, companies can incorporate environmental attributes, such as sustainable forest management (SFM), into their marketing strategies, in addition to price, quality and other product attributes. In traditional marketing strategies, environmental attributes were not considered important. Despite the growing popularity of environmental marketing, the results of this study show that respondent companies do not consider the 65 environmental attributes of their raw materials to be important. Price and quality of products are their main concerns, indicating that marketing strategies in the value-added sector focus predominantly on price and quality. As illustrated by a comment from a respondent, "value is in a service, not in the material used!" The results also show that company image is not considered important to value-added companies. Company image was ranked sixth from a list of twelve factors that could be considered important to businesses and was ranked first only 7% of the time. Generally, companies that place a priority on environmental marketing concepts are ones that also focus on company image (Kama 2003). Therefore, because value-added manufacturers seem to be less concerned with company image than certain other sectors (such as primary producers), forest certification has generally not found its way into the marketing strategies of value-added wood manufacturers. We can look at the same story from the consumer demand side. Environmental product certification started as a response to consumer environmental consciousness that started in the 1970's (Sheth and Parvatiyar 1995). Forest products companies started to incorporate environmental attributes to gain market benefits as a response to this public concern. However, according to this research, Canadian value-added manufacturing companies do not have a market that demands environmental stewardship. A majority of respondents stated that an absence of customer demand is the main reason for their lack of interest in forest certification. Two comments from respondents stress the idea that firms do not see forest certification as a good marketing strategy due to low or no consumer demand: "[our] client base expresses no interest or concern with certification"; and, "we had most customers that require (or indicated that they may require) certification no longer ask [for] or request it. The environmental movement seems to have faded somewhat". If firms do not use forest certification as a marketing tool, another reason for firms to participate in forest certification is outside pressure (Cashore et al. 2004). According to past research, many companies have chosen to participate in forest certification due to ENGO pressures. However, according to the results of this research, Canadian value-added companies do not seem to be faced with a pressure that forces them to adopt forest certification. When the study asked respondent companies that are interested in forest certification about their reasons for seeking forest certification, ENGO pressure or any other association pressure ranked only fourth and fifth, respectively, out of six reasons. The majority of companies interested in forest certification indicated that their main reason to seek forest certification is that they care about the present and future health of forests. Achieving economic benefits from forest certification was only ranked third out of six reasons. This was echoed by the companies currently involved or interested in forest certification. When asked about the most likely benefits from forest certification, "satisfaction in ensuring sustainability of our forests" achieved one of the highest mean values. This implies that the current demand for forest certification within the Canadian 66 value-added wood products manufacturing sector comes from a segment that seeks forest certification based on ethical and moral grounds. They understand that the direct economic benefits of forest certification may or may not be realized as financial gains. Theories from environmental marketing have also suggested that companies may seek environmental marketing tools such as forest certification based on moral grounds (Menon and Menon 1997, Kama 2003). 5.1.2. Types of Certification Schemes Descriptive statistics on companies that were interested or currently involved with forest certification showed that the Forest Stewardship Council (FSC) is the most popular certification scheme, both currently and within the next five years, followed by the Canadian Standard Association (CSA). It was beyond this research project to uncover why companies would choose one certification scheme over another; however, two respondents commented that their reason to participate in forest certification is to get into the LEED System, meaning that the LEED system could be influencing value-added manufacturers in becoming involved with the FSC. The LEED system is now gaining popularity in British Columbia, Canada, for example, with the city of Vancouver requiring that all of its civic buildings greater than 500 square meters meet the LEED standard (Libby 2004). However, it is worth noting that the majority of the sample had no understanding of the LEED system. Over 19% of the respondents stated that they still do not know which certification scheme they are going to choose. Professional organizations and certification agencies were ranked as the most trusted entities for making environmental claims. Therefore, these entities may be able to more effectively communicate information on different forest certification schemes to value-added manufacturers. 5.2 LEVEL OF KNOWLEDGE AND AWARENESS In general, Canadian value-added wood products manufacturers do not know very much about forest certification. Respondents' knowledge about certification of forestlands indicated a neutral level, while knowledge of COC certification was even lower. In addition, firms that are not interested in forest certification indicated a lower level of knowledge than companies interested in forest certification. As a result, I attempted to analyze whether there is a significant connection between the level of knowledge and the firms' participation in forest certification. According to descriptive statistics in this study, lack of knowledge on forest certification is one of the main reasons for companies not being interested in forest certification (respondents selected the two statements, "lack of information" and "we do not know much about certification", as the second and the third main reasons for not being interested in forest certification). The results of the cluster analysis 67 and logistic regression also pointed to this connection. Results from the cluster analysis showed that the level of knowledge regarding COC certification was lower among respondents who showed a negative attitude towards forest certification. This connection was confirmed by the results of the logistic regression. According to these results, the level of understanding of COC certification increases a company's odds of being interested in forest certification. Gronroos and Bowyers (1999) and Vidal et al. (2005) have also confirmed this; a low level of knowledge regarding COC certification might be affecting manufacturers' involvement with COC certification. A good level of understanding and awareness of marketing strategies is essential for the proper implementation of market planning (Kama 2003). Therefore, it is possible that the respondents' lack of knowledge on forest certification precludes them from seeing it as a marketing strategy. 5.3. MANUFACTURERS'ATTITUDES 5.3.1. General It is a common practice to measure attitudes based on the notion that attitudes are predictors of behavior (Anderson and Hansen 2004). The survey question about general attitudes towards forest certification was aimed at identifying certain beliefs that may eventually affect the adoption of forest certification by value-added manufacturers. The respondents were asked: 1) whether they believe that there is a problem with forests (Canadian or tropical) being threatened; 2) whether they believe that forest certification could help if there is a threat to forests; 3) whether they like to make any environmental commitments; and 4) whether they believe that benefits could accrue from forest certification. In general, respondents believe that forest certification is needed in the tropics and that it could reduce the threat to forests, in general. However, respondents doubt whether Canadian forests are threatened. In general, value-added companies seem ready to welcome environmental management. However, they do not believe that forest certification can produce benefits, such as consumer price premiums, other financial benefits, or improvements in production processes. They also generally doubt that consumers will demand certified forest products in the future and that certification would effectively differentiate their firms from their competitors. Using logistic regression, firms interested in forest certification show a corresponding belief that forest certification would effectively differentiate them from their competition. There was a significant difference in the levels of belief between respondents who are interested in forest certification and those that are not on forest certification's ability to differentiate between firms. 68 5.3.2 Benefits , Respondents who are supportive of forest certification think that forest certification most likely will help them to improve public relations and their company image, provide satisfaction in ensuring sustainability of their forests, and increase market access. Three respondents' comments on the possible benefits derived from forest certification support these ideas. One respondent mentioned "morale" as a possible benefit of forest certification. Another stated, "We find our customers enjoy the knowledge that our wood comes from a known, well managed source". One respondent discussed "broader access to European markets and some customers in North America", implying that forest certification could help to increase global market access. Not all of the respondents were as positive about the benefits of certification. The majority were doubtful about the possibility of realizing price premiums for certified goods. There was also significant disagreement among respondents about forest certification's ability to produce production-related benefits such as waste reduction, better inventory control, or increased overall efficiency. Respondents' attitudes towards overall benefits from forest certification suggest that they believe that forest certification might bring them long-term benefits but no short-term, economic or production-related benefits. One respondent supported the idea that certification would provide "no immediate describable benefits". As suggested by previous research, market immaturity could possibly be a reason for the absence of (or few) short-term benefits (Humphries et al. (2001). Another could be the lack of adoption of COC (Vidal 2003, Vidal et al. 2005). Most production-related benefits are derived from COC within a context of supply chain management, such as improved inventory control, waste reduction, and improved communication with other members of the supply chain. Other direct economic benefits from COC certification are far from obvious. 5.3.3 Costs and Challenges Respondents viewed the costs required to become certified as the main challenge related to forest certification. The costs required to become certified include both direct and indirect costs. Previous research shows that these costs depend on the company's size, location, and previous environmental management policies (Simula 1996). As a result, the question, 'why do value-added companies believe forest certification is costly', warrants further research. As noted before, many firms that are interested in forest certification now seek certification on moral grounds. However, when there is no market demand or price premium to bear the costs of forest certification in the short run, firms' long-term commitment to forest certification may wane. A comment from one respondent supports this claim: "We will continue to purchase FSC certified wood, but will 69 drop our COC until demand increases. For 3 years, we have been selling "certified wood" but [have] never [had] a request for our COC proof. In addition to the costs and low market demand, respondents identified a lack of suppliers for certified raw materials and over-pricing of certified raw materials as important challenges. A comment from one respondent confirms this: "Until consistency of volume, supply, quality & price stabilize, we will not be able to offer our customers products". 5.3.4. Suggestions for Improving Acceptance of Forest Certification One suggestion to increase manufacturer adoption of forest certification in the sector is that consumer markets for certified value-added wood products must be developed. The majority of the respondents in this study stated that they needed information on how to increase public promotion. However, previous research (Kozak et al. 2004) has shown that it is important for developers of forest certification to consider who should be doing public promotion of forest certification. Whoever is responsible, it is clear from this study that the lack of end-consumer demand and a lack of consumer awareness regarding forest certification is discouraging manufactures from adopting forest certification. Two comments from respondents support this: The "public [is] not knowledgeable about it. [They] have no idea what this certification is all about!", and "With no customer education, there is no need for forest certification, and who will present the proper facts?" Another suggestion comes from the results of the cluster analysis which helped to identify an important manufacturer segment that consists of value-added producers who are currently not using forest certification but have taken a "wait and see" attitude. This segment has a positive attitude with respect to forest certification, but indicated that they would make the decision to adopt certification based on how markets for certified products would develop over time. Indication of this was apparent from one respondent's comment, "[certification] may be a good idea and may be necessary in the future. I do not believe there is any benefit to our company at present. There are other areas that are a higher priority to our company. If necessary, we will participate at the appropriate time". With proper promotional strategies, this large segment (43.5%) could have a significant impact on increasing the adoption of certification. Finally, another important observation in this study revolves around the respondents' experience in working with forest certification. In this survey, only eight companies had experience with forest certification. Even though we cannot make statistical inferences due to the low number of respondents, seven out of the eight companies stated that they were planning to continue in the business of certified wood products. One company mentioned that they would drop chain of custody, but continue to buy 70 certified wood. This suggests that companies currently working with forest certification either are pleased with forest certification or have positive expectations regarding future developments. 5.4 LIMITATIONS AND FUTURE RESEARCH One research limitation with this study was that some of the respondents (in Eastern Canada) requested that the survey be in French. This was not possible due to time and budgetary constrains. However, if questionnaires were printed in the French language, the response rate may have been higher. Another limitation is that, due to lack of previous research on this topic, variables used in the logistic regression may not be the most informative in predicting the probability of a company being interested in forest certification in the value-added sector. However, this can be addressed only with increased knowledge or research on this specific topic. A suggestion for further research in this topic is to investigate the relationship between executives' personal values and the company's interest in certification. Decision makers' personal values, such as attitudes towards the environment, could directly affect firms' adoption of forest certification. Another direction for future research, as implied by this research, is to investigate consumer markets for certified value-added products. This research indicated that value-added manufacturers generally care about the health of forests. They also agree with the idea of forest certification; only 2.0% of companies that are not interested in certification indicated that they do not agree with the idea of forest certification. The challenge arises in integrating forest certification into business strategies. There seems to be a link between manufacturers' hesitance to incorporate forest certification into their business plans and their belief that consumers do not know or care about forest certification. According to previous consumer research, consumer awareness on forest certification is, indeed, low. Consumers not need to be educated about forest certification, but future research needs to uncover what consumers think of as "good" or "environmentally friendly" forestry. Once this is known, forest certification can then be better linked to consumer ideals. Forest certification could prevail with or without further developments of consumer markets if driven by large corporations, ENGO's and governments. However, for small companies in the Canadian value-added sector, forest certification may not be important unless the consumers ask for it. Further research into understanding how consumers relate to and care about the idea of "environmentally friendly" wood products could help to grow certified forest products markets, as well as other markets where environmental attributes matter, such as fisheries and tourism. 71 6. CONCLUSIONS Stakeholder acceptance is critical to the progress of forest certification. Since the inception of forest certification, researchers have attempted to understand this. This understanding is useful in defining the future progress of forest certification, both as a policy tool to address issues of sustainable forest management (SFM) and as a marketing tool for forest products manufacturers. However, knowledge about wood products manufacturers' acceptance of forest certification is low. This is particularly true in the Canadian value-added wood products manufacturing sector. This study found that Canadian solid wood value-added manufacturers are not very supportive of forest certification. Currently, only 17.6% of the sector is involved with forest certification (they either have adopted chain of custody certification (COC) or use certified wood without COC), while only 5.6% of the value-added sector in Canada reported involvement with COC certification. Another 17.6% of the sector plans to become involved with forest certification within the next five years. The majority (64.8%) of the sector voiced a distinct lack of interest in forest certification. Respondents indicated two main reasons for their low participation in forest certification: limited or no consumer demand; and a general lack of knowledge of forest-based or COC certification. Results linked the weak market pull for certified value-added products to low consumer awareness of certified forest products and the lack of knowledge to scarce information available to them on the topic of forest certification. The main reason for the respondents who are currently interested in forest certification to support forest certification seems to revolve around issues of morality. They strongly believe that forest certification would likely help them in being part of ensuring forest health, in improving company image, and in improving market reach. They generally do not believe that forest certification would offer them any production-related benefits or increased financial benefits, for example in the form of price premiums. I attempted to understand significant differences between respondents who are interested in forest certification and those who are not. According to the results of a logistic regression, there was a significant difference in the level of awareness of COC certification between the two groups. The level of awareness was significantly lower among respondents who are not interested in forest certification. The results of logistic regression show that value-added manufacturers' awareness of COC certification increases the odds of them being interested in forest certification. In other words, the awareness on COC certification significantly affects a firms' decision to consider forest certification. The logistic regression results also showed a difference between the two groups with respect to their belief that forest certification would help to differentiate themselves from their competitors. Respondents interested in forest certification had a stronger belief that certification helps to differentiate them from their competition. 72 A cluster analysis suggested that respondents who are currently interested in forest certification may hold one of two attitudes: either they were very positive about forest certification or they adopted a "wait and see" approach. The "wait and see" group indicated a higher awareness of forest certification concepts and is mainly made up of medium to large size companies. This group is more likely to become involved with forest certification in the future depending on the market benefits and/or market "buzz" that forest certification can create. As a result, this group might be an interesting target for further investigation in terms of promoting forest certification. Smaller sized companies tend not to be interested in certification. However, the study could not find any statistically significant relationship between company size and an interest in becoming involved with forest certification. Forest certification is an evolving topic. I intended to study the current situation of forest certification within the Canadian value-added sector. 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Retrieved January 2005 from: http://earthtrends.wri.org WWF- World Wide Fund for Nature 2000. The Forest Industry in the 21 s t Century. A report prepared by the WWF's Forests for Life Campaign. Retrieved January 2003 from: www.panda.org/ forests41 ife Zakreski, S., S. Doak, and M. Evertz. 2004. Matching Business Values with Forest Certification Systems. Metafore Report. Retrieved November 2004 from: http://www.metafore.org/downloads/certification_eval_final8104.pdf 80 APPENDIX I: MAIL QUESTIONNAIRE FOR COMPANIES Survey on Forest Certification for Value-Added Wood Products Manufacturers in Canada Section I - Value-Added Sector Profile 1) Where is your company located? Note, if your place of work is a division of a larger company, please answer only for your division and check the following box. Q City / Town Province 2) Please estimate the percentages of wood products (by value) that your company uses as raw material inputs. (Total must equal 100%.) Reconstituted Wood Products (includes Particleboard, Medium Density Fiberboard, Hardboard) % | Plywood and Veneer. % Softwood Lumber % Hardwood Lumber % I Dimension Parts and components % Other (Please specify) % 3) 4) 5) Please list the product(s) that your company manufactures and the approximate proportion of sales (by value) of each product. (List up to 5 of the most common products.) 1 % 4 2 _ : % 5 3 ; % Please indicate the destination of your products in terms of saies value. Domestic • % What are your major domestic markets? % What are your major international markets? . . . . . •. International Please rank up to three of the following issues in terms of their importance to your company. (Rank from 1 to 3, with 1 being the most important issue.) • finunciul returns 0i market share • the present and future health of forests i*i broad national and international public concerns UUicpnforrh_^_iili accepted industry sljndaids * quality of finished products Rank • safe!} of finished product:, prices of final produce • environmental attributes of run nulciuls • company image • well-being of employees •s community health _% % Rank 6) Please indicate the approximate sales revenue of your company/division in 2003. (Note, that all answers are strictly confidential We understand if you do not wish to answer this question. If so, please feel free to skip.) Cdn$ 7) How many full-time and part-time employees work in your company/division? Full-time Part-time Section II - Awareness of Forest Certification and Chain of Custody Certification Forest certification confirms that wood products come from sustainabty managed forests. Chain of custody certification confirms that sustainably managed wood was used in the production of wood products. 1) For each of the questions below, please indicate your company's level of understanding with the following concepts (Indicate by circling the appropriate response for each question.) 1 iS How well does your company understand certification of forest lands for sustainability?' • :How weiT'doeFyoiir cbmpany: understand chain of custody cciufication {for, wood productsmianufae t urers'.' . [gj How well does your company understand terms like "endangered forests" and "old growth forests^ ? _ • How well docs >oui compjny understand the LEED system (The Leadership in Energy and Environmental Design sustainable building rating system)'' 2) From the list below, please rank your company's level of trust regarding environmental claims made by various entities. (Rank from 1 to 6, with 1= We trust this entity the MOST and 6 = We trust this entity the LEAST.) Rank Rank D a private certification company ( ) S the wood products industry ( ). ill.the Federal Government ( ) §j environmental organizations ( ) 11 the Provincial Government ( ) • professional associations ( ) do not understand at all completely understand 1 2 3 4 '5 -Pill HKiil 1 2 3 4 5 82 3) Please indicate your level of agreement with the following statements. (Indicate by circling the appropriate response for each statement.) 4) My company... ...believes that Canadian forests are threatened. believes that en virorjS l^iCertific ation can i educe the tin eat to foicsls ...believes that there is a need for environmental certification of tropical forests. strongly disagree neither disagree agree nor disagree agree strongly agree 1 1 I^ Jhastop ijanagemenjt who support ^ ...has made organizational changes to accommodate an emlronineiilal commitment. 1 . w ot Mt^^^^^^^^MsS^SSS^^^ o r r a w mMenal*. - 1 ...believes that our customers will pay a premium for environmentally certified wood product;,. 1 C ^ y i g ^ J ^ ^ M g ^ y ' M demand certified wood products in ihefuiuie. _ I ...believes that being certified would effectively differentia le our company from our competitors. I llbelie^^^ our company's profitability. I ; ...believes that using certified wood will improve our company's production processes. 1 Please indicate your company's current interest or engagement with forest certification. Select the description from one of the three boxes that best describes your company's level of interest/engagement, answer all questions in the box, and proceed to the section as directed. My company is currently involved in forest certification by using.... O chain of custody certification. E] certified wood without chain of custody. PLEASE GO TO SECTION III BELOW (PAGE 2) • both. My company is interested in becoming certified within 5 years by using.... • chain of custody certification. D certified wood without chain of custody. PLEASE GO TO SECTION III BELOW (PAGE 2) • both. IZl My company is not interested in certification. Please indicate why your company does not have plans to adopt certification within next five years from the following list of possible reasons. (Check all that apply.) ' CD It will not bring any benefits to my company. • [fterellpjaclc of info^ mtion .about, fpresTcertm^^ ^ . ~"1 • There is a lack of incentives from government. O [Tlie implerr^ D We already use wood from sustainablyjtnanaged forests. D My company's customers arc not dcmandingtcertifie"d)prpduct.s. C3 .We donot agree with the idea of forest certification. • We do not know much about forest certification. CD Other (Please specify) Below, please state any additional comments that you have on forest certification and why your company is not interested in it. PLEASE GO TO SECTION IV (PAGE 4) 1) Section III - Companies Involved / Interested in Forest Certification and Chain of Custody Certification ; To the best of your knowledge, what are the major reasons for participating in forest certification? (Rank from 1 to 3, with 1 being the most important reason.) In older to minimize pressure from environmental groups. In order to obtain the benefits that certification provides. Ba juse 1 believe that cnviionincnlal purchasing is going to be a standard piacticc in the futuic Because I care about the present and future health of forests. Bccauac 1 am u member ofan association in which certification is a mandatory requirement. Other (Please specify) 2) Which of the following certification scheme(s) do you currently use or will you likely be using? (Check all that apply.) E Forest Stewardship Council (FSC) • If Canadian Standards Association (CSA) D 11 Sustainable Forestry Initiative (SFI) D §j American Tree Farm System (ATFS) CH |y Pan European Forest Certification (PEFC) D I Don't Know • I] Other (Please specify)_ 83 3) What dp you think are the most difficult issues related to forest certification? (Check all that apply.) •1 costs required to become certified _ D • not enough market demand D w< insufficient price premiums d • lack of knowledgeable personnel _ • • • increased administrative w oik D , ! [ & ^ E f ^&rt_l_tioii.on certification _ • too many schemes to choose from d 1 low credibility with customers LJ not enough resources for marketing D : lack of government collaboration LJ floss of autonom> LI : lack of certified suppliers D I [kick of certified wood species LI 4) (For each statement, please circle one number indicating the likelihood.) not at all not neutral likely very likely likely likely Financial benefits: • increased profitability H H 1IB5P liiililliifiil !§ higher price premiums i 2 3 4 1 increased market access B U B m m lilllllfyliiBll Production related benefits ailbelte^ Jrrwntory^ coiilrol i waste reduction iWimcrekeotbyerfll efTiciency Information and communication hcnctils. iifcleSrerir__HTnation to investors •i enhanced understanding of consumer markets •:pmprovedi^ communicaiion with government ill improved communication with customers apniprovedcommunication withsupplieis Other benefits: _ ii|reduced;pressure#om ii better public relations /company image ' Satisfaction in-,ensuring the sustainability of our forests 5) Can you think of any other benefits that are derived from forest certification? If so, what are they? 6) Where does your company purchase or plan to purchase its certified wood supplies from? (Check all that apply.) (Zl directly from domestic sources LJ from Canadian brokers/wholesalers fj other (Please specify)_ fj directly from international sources \3 from international brokers/wholesalers 7) What is the origin of your wood supplies? CJ Canadian public land CH Canadian industrial land LI International sources 0 Canadian private land CH Canadian non-industrial land PJ Don't know 8) Approximately what proportion of your wood products purchase costs are certified products? Currently, __% of our purchase costs are certified products. In one year,1' ' ' % of our purchase costs will be certified products. 9) On average, how much more does your company pay or plan to pay for certified wood supplies compared to non-certified wood supplies? % 10) Has your company requested that your other suppliers become certified? • Yes • No • Will do so in the future 11) Please rank the top three problems that you currently face or expect to face when purchasing certified wood supplies. (Rank from 1 to 3, with 1 being the most problematic issue.) Rank Rank fj Product quality ( ) gj Contract fulfillment ( ) if] Punctual delivery ( ) [i] Overpriced ( ) I) Consistent supply ( ) 11 Transportation costs ( ) 12) Please list any other issues that you currently face or expect to face in purchasing certified wood supplies. 84 13) Certified products can be sold in many ways. Which of the following best describes your strategy for selling certified wood products? Marketing: D All of our certified products are labeled as certified. D Some of our certified products are labeled as certified. • None of our certified products are labeled as certified. Customers: D We sell only to certified wood products buyers. • We sell to any customer, regardless of their environmental policy. • A combination of the above two. 14) What is your approximate annual sales of certified products? Currently (in 2003): Cdn$ In one year: Cdn$ 15) What kind of premium does your company receive for certified products compared to non-certified products? Currently (in 2003) % In one year % 16) What types of information materials on certification does your company make available to customers? (Check all that apply.) • signs • brochures • other (Please specify)_ f~l product tags • no information materials provided 17) Which of the following are currently or are expected to be customers for your company's certified wood products? (Check all that apply.) • wholesalers • direct consumers • other retailers • department / furniture stores • custom woodworking jobs • other (Please specify) _ • builders arid developers • home centers / hardware stores ' ' "' '" 18) What proportion of your certified wood products do you sell or do you expect to sell (when you become certified) to domestic versus foreign markets? , % international (please indicate the names of the countries) ; % domestic (please indicate the names of the regions) 19) Where did you learn about certified wood products? (Check all that apply.) • personal contacts • trade journals • other (Please specify) . •certifying agents . • business contacts 20) What services would you like to see certifiers provide in the future? (Check all that apply.) • chain of custody advice • information on certification process • other (Please specify) • internal environmental auditing LZI public promotion Answer the following questions only if you currently produce certified wood products. Otherwise, please proceed to Section IV (below) 21) How did the proportion of your company's sales of certified wood products change from 2002 to 2003? • increased by % • decreased by _ % • stayed the same 22) Has your company experienced any unexpected benefits as a result of certification? • No LZI Yes (Please specify) 23) Has your company experienced any unexpected drawbacks / costs as a result of certification? • No D Yes (Please specify) 24) Does your company expect the proportion (by sales) of certified products to increase, decrease or remain the same in the future? • increase • Decrease • Remain the same 25) Does your company plan to continue to sell certified products? • Yes • No (If no, why not?) \ . Section IV What is your job title? Do you have any additional comments regarding the certification of value-added wood products? If you would like a summary of the results of this survey, please include your name and address below, and it will be sent to you! Company name: : .Contact: . . ; : Address: Please mall (addressed envelope included) or fax to Piyangi Jayasinghe at (604) 822 9104 Thank you for your time and cooperation in answering this survey! 85 APPENDIX II: COVER LETTERS APPENDIX III: ANSWERS TO THE OPEN-ENDED QUESTIONS Section II, Question 4: Please indicate why your company does not have any plans to adopt certification within next five years and any additional comments on forest certification and why you are not interested in it. We have most customers that requires (or indicated that they may require) certification no longer ask or request it. The environmental movement seems to have faded somewhat. Because our main competitors come from China and has better prices, so it is not the time to increase prices.... Many customers would not pay for Believe market driven certification will have only minimal impact and regulated certification is not politically sell-able We don't know enough about it yet and the market is not applying any pressure to learn. ..May be someday. We deal mostly with locally cut + milled wood Most companies and loggers will have to meet certification. So the wood we will have access to will come from certified forests and operators. It should help us to be certified. With no customer education, there is no need for forest certification and who will present the proper facts? Certified raw materials are not and probably cannot be purchasable due to small market size. Wood for our doors use hardwoods from the Eastern Seaboard . We will adjust us the need arises We are doing very well without it. Owners have decades of experience in wood harvesting and forest management. Most of our wood comes from wood lots that are well managed. Seems to be somewhat of a shell game with logger companies. No real effective changes made. Joust going through motions. . . No immediate discernible benefits: Forest land in BC is 95% owned by the crown anyway: All BC forest products should be compliant anyway. We purchase from distributors who use wood products from sustainably managed forests We are very interested but as we do not purchase direct from the mill, we would find it difficult to become registered. _ This questionnaire is the first time I have heard about the concept of certified wood. Quality of wood and the price are the most important for us. Need more information Our suppliers (sawmill) U.S. do not seem to be interested Dangers and results of non-certification (if any real ones) are not proven and if so have not been communicated to harvesters or users. Certification would have to be a global initiative. Cheap tropical imports from clear-cut forests force others to avoid certification. My company is very small. I do not understand most of this survey. Company is too small to support program ' Do not have or know any thing about forest certification. Have not been informed. We are too far down the chain to make a difference This questionnaire is the first I have heard about this ones of forest certification. Sorry. It will limit the already limited supply of old growth fiber. We are interested but points C&D are the biggest problem. We buy our logs from private landowners with no interest in certifying. Private landowners in South Central Ontario are happy with the health of their forests, due to sustainability bylaws that have been in place for years. Although I want certification, forest owners are not willing to pay for something they feel they do not. Especially, since they have buyers waiting in line to buy non-certified wood. We have never heard of it. We use mostly Oak and Maple coming from the US. Client base expresses no interest or concern with certification We are interested but have no plan. . We do most of our business in Germany and Switzerland. There we use local wood. It is much cheaper than Western Red cedar and customers like it because it is local wood. 92 Section III , Question 5: Can you think of any other benefits that are derived from forest certification? Stress creates innovation and stimulates creativity and problem solving "out of the box" thinking and certification has created stress. Helping our customer's customers-Environmental groups are targeting large home builders so they need to be able to fell their customers that they are using certified products etc., Better/more inclusive system to manage wood lands operations. To get into LEED projects entrance to the LEED system A small differentiation for a short period of time. We find our customers enjoy our knowledge that our wood comes from a known, well-managed source. Better & more disciplined environmental management system Broader access to European markets and some customers in North .America. Possibly there is a marketing advantage to all of BC or all of Canada. If we had a "global certification policy" where our lumber was marketed worldwide as a envir-friendly" alternative to woods from other countries. I.e. we all could become the "green choice" for the world. It could not cost more or it will not work on a large scale. Everything would need to be certified in that case Morale Section III , Question 12: Please list any other issues that you currently face in purchasing certified wood supplies. We do not know enough about suppliers. Not all species available, Costs increases not recognized by customers The actual certified wood does not exist on island; as well, it does not come to be sold on the open market. We do not know how our exotic suppliers could be certified: and ironically, they are the ones who should be certified. We haven't made any effort to purchase certified raw materials since we didn't even know of their existence until now. We're not sure of any of our current suppliers (local distributors) have certified wood available. Certified labor to harvest our private and public lands: and their high expected fees. We anticipate a few of our FSC suppliers to drop in the next year due to lack of demand and increasing certification costs. Regarding chain of custody certification; threshold of 70% (CSA-SFM )is difficult to achieve. We currently have to use whatever source has the right logs at the time we need to purchase. This does not always coincide with the suppliers. j Have only had two customers request certified wood in last 15yrs, both from Malaysia. So far, for us, there is no specific demand for certified wood. I'm sure they wood take it, but they are not asking for it at this point. SFI/FSC disharmony 93 Section IV : Do you have any other additional comments regarding the certification of value-added products? I am interested in this topic and am strongly supportive of better harvesting systems for our wood resources. Nevertheless from on-going reading in journals and from a seminar on the subject that I recently attended I have the very strong impression that this program is very, very much being introduced on a "politically correct" basis without the support of the essential component which is demand from the buying public - not the demand from environmental groups who often have ill-informed notions of forest practice and who sometimes have internal money making interests. r The recent seminar was interesting in that after a full day of discussion it was most apparent that the real interest in "pushing" the certification process came from the organizations who were jealously trying to promote their style of certification. In the full day of presentations there was not one mention of consumer demand. This "it is good for you" approach is probably why it seems from trade reaction that the interest in certification is waning rather than accelerating. The current certification target seems to be to obtain a piece of paper that will enable the suppliers to use this to show their responsible attitudes without supporting demand by the buyers. Alternatively, I suggest that more effort be spent in the genuine promotion of greater utilization of our limited forest resources. This can be done by greater effort by both public and private bodies to give support to more selective use of wood for a multitude of more enhanced products. We still through public policy and administration encourage commodity processes. Very little firm action supports the efforts of those companies who can obtain much higher value for the wood used. The secondary industry does not have the capacity to harvest and utilize our full forest resource and we must therefore, continue with commodity systems. However, the secondary industry will disproportionately add measurable to the employment, tax and foreign exchange objectives of our society. It can also give more complete utilization to our wood extraction systems. We should therefore actively develop much more production in the value-added section, while allowing the major wood volume to go through commodity production. Creating an environment in which there is financial benefit to participants will ensure on-going practices that insure continuity of our forests more than will an artificially oriented certification. All companies want to have a future. A study opportunities for improvement in development of secondary and tertiary products would in my opinion offer greater worth than the study of the certification process. Perhaps this can be done by other students. , Education and availability of raw materials needs to be addressed with a premium on contracts in order to move this process ahead. Certification likely have value in market for high quality, scarce or endangered wood species. It is unlikely to have significant impact with commodity wood products -other than to drive up cost to the consumer and enrich the bureaucracy operating the process. I do not think it's a bad idea and its time will come. For now, it adds costs that make it even harder to compete with China and other cheap labor/no-social costs countries. The public will have to demand it for it to happen on any scale. National and provincial standards should be set to environmental standards set by the people of B.C (or Canada). I think we will have to be using certified wood products because everyone else will be using them. However, as of this point we have had no demand for this. North American forests have been well managed for years. Unless more foreign countries comply, this is an additional waste that further reduces our competitiveness and becomes yet another "TAX". Poor government planning with regard to long term wood supply for small operations. Not especially Would like more information on certified forest products The multitude of certification system has not made it easier to educate the market place. This fragmentation is a bad thing. . Value is in a service not in the material used ! Until consistent of volume, supply, quality & price stabilize, or other systems provide ( ) we will not be able to offer our customers products. If CSA were on the same footing as FSC but without FSC's stern troopers like Greenpeace and RAN, this would happen. The certification should have more promotion for smaller firms and have priority for start up and expansion for full -value-added companies. Access should be improved for small one-term woodlots and certified forests. 94 This may be a good idea and may be necessary in the future. I do not believe there is any benefit to our company at present. There are other areas that are a higher priority to our company. If necessary, we will participate at the appropriate time. Make some real changes to B.C. forestry, "its time"! They need to plan better! Logging plans etc. "Full rotation!" There appears to be little correlation between environmentalist demands and forest certification: I.e. no "slack" is given to companies that are certified. As a hardwood product manufacturer in B.C., I would like to see our hardwood resources managed more intensively. But, that is crown responsibility, not mine. The original was great: but now it is more a racket to get money from northern companies, the only one able to be certified. I do not know much about that certification. Need more information. Then we can analyze the impact on our organization. Personally, I think that is a great idea. As the general manager, it is another story. Better sawing equipment and less waste of wood in the forests. Our products are already TPI certified. For export there is a program in regard to H/T lumber to other countries. But this program not been known in our industry. We do not know too much to do with it. My company is very small. We are certified by ISO 14001 and will be certified by SFI this year. No customers request any of those certifications for the moment. I have almost no information on certified wood. Cannot comment on most of the questions. We do not hear much about certification. This survey should go to primary manufacturers. Rainforest are endangered due to agriculture; we are frustrated a little to have to be certified due to environmental organizations when we already manage our resources in accordance with sustainability concepts. We need one certification world wide if this is going to work. Public not knowledgeable about it and have no idea what this certification is all about!! Furniture market puts no value on it now. I am aware of some of the councils in place to monitor forestry practice, but know very little as to the goods and trends anticipated for the future and could very well be using some certified products, and not know at this point. Thank you for including us in your study regarding forest certification. I am not sure that our responses to your questions will be very helpful. If you need clarification in some of answers, please do not hesitate to contact me. There becoming so many avenues that certification is becoming confusing to the average homeowner which is best for their needs. Many are concerned about the environment and want to do their part but actual certification does not matter because most don't know the difference between them. We will continue to purchase FSC certified wood, but will drop our COC until more demand increases. For three years we have been selling "certified wood" but never a request for our COC proof. I'd be pleased to discuss and explain. I think that it could be difficult for most value-added industries to comply as their source of raw materials is usually limited. The fact that they are adding substantial value to the resource whether it is from certified mill or organization is more important. '_ No body has ever given us any information here on the trade. Better forest management is critical to the future of my industry. If corporate certification improve wood usage and will assist in improving "sustaining our forest", I fully support it. Presently, I am unaffected and probably never will. I am still overwhelmed by the waste in our usage of value-added fiber. Too many schemes I would like as much information as possible on tropical hardwoods and the environmental issues surrounding the major species. We are currently not purchasing any certified wood supplies, but are interested. As stated before, we buy our wood in Europe locally. I am sure if we have certified western Red Cedar at a descend price, we will be able to sell it in Europe. 95 

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