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June 23, 2004
How Unsustainable Forestry Practices in Indonesia Impact Sustainable Practice in the US
    by William Baue

Part one of a three-part article exploring the complex global relationship between sustainable and unsustainable forestry practices.


Last month, Joe Torras, CEO and chair of Eastern Pulp & Paper, passed for the last time the avenue of ornamental maples he had planted in the early 1990s lining the drive to the now-vacated corporate headquarters in Amherst, Massachusetts. In the 1970s, Eastern had pioneered a process that transformed an environmental liability, sawdust that had to be land-filled as solid waste, into an environmental and economic benefit as a raw material for paper pulp. More recently, the company innovated an oxygen bleaching system that minimized overall chlorinated effluent (as measured by adsorbable organic halides, or AOX) to the lowest levels for any kraft mill in the US. So why did this privately held paper company on the cutting edge of environmental sustainability have to declare bankruptcy?

Globalization, according to Mr. Torras--namely, paper imported from places where environmentally unsustainable practices such as illegal logging and rainforest clear-cutting allow foreign companies to undercut prices in the US.

Gary Dunning, executive director of Yale University's Global Institute of Sustainable Forestry (GISF), substantiates this market effect.

"Because the procurement cost is so low, the price of illegally and unsustainably sourced timber negatively impacts US markets because we simply have to sell our products at a higher price," he told SocialFunds.com.

Indonesia is a case in point. The problems of unsustainable forestry practices and illegal logging in Indonesia are well documented. Foremost among sources is Profits on Paper: the Political-Economy of Fiber, Finance, and Debt in Indonesia's Pulp and Paper Industries, published in 2000 by the Center for International Forestry Research (CIFOR). Another key document is Paper Tiger, Hidden Dragons: The responsibility of international financial institutions for Indonesian forest destruction, social conflict, and the financial crisis of Asia Pulp & Paper, published by Friends of the Earth (FoE) UK in 2001.

These sources identify a complex web of interrelated factors mixing to make a financial, social, and ecological time bomb. The papers report how Indonesian pulp production skyrocketed in the 1990s, prompting companies to borrow on the promise of future profits to increase capacity. However, the timber supply fueling this growth was sourced not from sustainably regenerating plantations but from virgin natural forests and rainforests that could not sustain the rapid growth of the 1990s. In addition to eliminating these forests' environmental and social benefits, such as biodiversity and indigenous people's habitat and livelihoods, the clear cutting also extracted all financial value in one fell swoop, erasing all future value off the face of the land.

And these are only a few of the strands of the seemingly inextricable web of problems. One potential solution for companies that use forest products is to quarantine the syndrome by boycotting the purchase of timber, pulp, and paper from unsustainable sources.

For example, International Paper (ticker: IP), a US forest products company that is much larger than Eastern Pulp & Paper, established a policy in September 2002 refusing to procure controversial Indonesian wood. IP, whose profits have been sapped by unsustainable overseas producers, takes the moral high road by highlighting its own commitment to sustainable forestry in distancing itself from unsustainable forestry practices in Indonesia. The policy itself acknowledges that IP could use its market weight to promote positive change by pushing producers to harvest in a sustainable fashion. However, IP chose to simply pull away because "we have found no system in place to guarantee that the wood coming from Indonesia" originates from sustainable forestry.

Companies operating elsewhere in the web linking them to unsustainable Indonesian forestry practices may not have the luxury of morally distancing themselves. The CIFOR and FoE reports place significant responsibility for the Indonesian forestry quagmire on international lenders that financed the pulp and paper companies without performing adequate due diligence to identify the sector's lack of sustainability. Because the relationships established through this financing are ongoing, unlike IP the international lenders may have no other option than to try to promote positive change.

Likewise, the Indonesian timber, pulp, and paper companies themselves are under intense pressure to address their interrelated financial, environmental, and social problems.

Unfortunately, any initiative launched to resolve these problems will be too late to help Eastern Pulp & Paper.


Part two of this article explores how international financial institutions and the pulp and paper companies operating in Indonesia are addressing unsustainable forestry practices; part three asks how sustainable Asia Pulp & Paper's Sustainability Action Plan is.

 

 
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