BUSINESSWEEK ONLINE : NOVEMBER 13, 2000 ISSUE
INTERNATIONAL -- LATIN AMERICAN BUSINESS

Saving the Forest for the Trees (int'l edition)
A Brazilian company joins a drive to make timber ''green''

There's a fresh coat of bright yellow paint on the ends of the tree trunks piled up on the banks of the Madeira River deep in Brazil's Amazon forest. ''Cheerful color, isn't it?'' says Raimundo Barbosa, paintbrush in hand. ''That's the certified wood.''

Barbosa works for Gethal Amazonas, a Brazilian company, which on Oct. 19 became the first tropical plywood maker in the world to be fully certified by a nonprofit organization called the Forest Stewardship Council (FSC). Founded in 1993 and run on a shoestring from Oaxaca, in southern Mexico, the FSC's goal is nothing less than converting the world's timber companies to a new creed of sustainability. The organization's members include environmental groups, as well as the logging companies, timber merchants, and wood retailers that until recently were their sworn enemies. ''Our mandate is to change the way the world's forests are managed,'' says FSC Operations Director James Sullivan.

If the FSC has its way, certified companies like Gethal will eventually squeeze their noncertified competitors out of the global marketplace. ''It's a matter of survival,'' says Gethal CEO Bruno Stern. But don't think the wanton destruction of the rain forest is going to end next week. The FSC has certified less than 4% of the world's 500 million hectares of productive woodland so far. At this rate, it's not certain which will become extinct first: unscrupulous timber companies or some of the precious forests they plunder.

Yet the activists and their new allies in industry press on. At Manicore, Marcelo Alves, one of Gethal's forest engineers, shows what FSC certification means in practice. Of the 40,000 hectares of ancient forest Gethal owns, 13,000 are being mapped in 50-square-meter blocks to show the location of every tree to be cut. Trees marked for the chain saw must be over a certain circumference. And Gethal limits itself to just 13 species of Amazon hardwood, including amapa, cajui, and sumaruba. One team then does the cutting, first removing any creepers that could pull down nearby trees. Another team marks a trail for the tree to be dragged a maximum of 300 meters to the nearest storage patio. ''The idea is to minimize the impact so the forest can recover more quickly,'' Alves says. The logs then travel two days downriver to Gethal's mill near Manaus. There, they are turned into plywood that is shipped to the U.S. and Europe for use in the construction, marine, and transport industries.

FORMER DEVIL. Gethal's practices weren't always this eco-friendly. In the 1950s and 1960s the company was among those responsible for the near-destruction of the Atlantic Forest in southern Brazil. When the trees there ran out, it decamped to the Amazon, where it bought wood from local loggers, not caring much where it came from. ''A few years ago, they were the devil incarnate,'' says Tasso Azevedo of Imaflora, a Brazilian agency affiliated with FSC.

But that was before the plight of Brazil's Amazon forest began to garner global attention in the late 1980s. Since then, pressure on rapacious logging companies has been building from all directions. Environmental groups have been the most outspoken critics. In June, Greenpeace activists invaded warehouses in the British port of Tilbury and stenciled the words ''criminal plywood'' on 1,400 packs of plywood. The shipment belonged to Amaplac, a Malaysian-owned company long accused of buying timber from Brazilian loggers operating without legal permits.

Retailers have also become a force for change. Home Depot Inc. of Atlanta, the world's largest home-improvement chain with sales of $34.8 billion last year, is an FSC founding member and one of the movement's drivers. Last year, the company promised to stop selling wood products from endangered regions by the end of 2002 and to give preference to suppliers offering FSC-certified wood. ''This is something we did in advance of our customers asking for it, though more and more are doing so,'' says Home Depot's manager of environment programs, Kimberly Woodbury. Home Depot's main rival, Lowe's Companies, along with window-maker Anderson Corp., have also joined the crusade. In Europe, the certification movement has even greater momentum: 20% of all wood and paper products sold in Britain, for example, are FSC-approved.

Some investors are joining the cause. A growing number of so-called green funds limit their investments to companies with environmentally sound practices. For Gethal, this trend has been vitally important: In February, a fund operated by Grantham, Mayo, Van Otterloo & Co. (GMO), a Boston asset management firm that has about 1% of its $23 billion portfolio tied up in green ventures, paid $7 million for 85% of the company. GMO is also spending $10 million to modernize Gethal's mill and buy new forests at Manicore. ''We were looking for a project in tropical forests and Gethal was by far the best one we found,'' says Bob Brokaw, a GMO partner. Gethal posted a $1 million profit on sales of $12 million last year. Its new owners expect annual revenues to rise to $14 million and margins to improve as a result of cost-cutting. GMO has promised to hang onto Gethal for at least a decade, after which it will decide whether to sell it.

Without GMO's cash, Gethal would have been hard pressed to meet the FSC's exacting standards for certification, a process that took two years from start to finish. Gethal's CEO believes the effort will pay off in the long term. But Stern admits he's ''a little disappointed the market isn't paying the premiums we were hoping for.'' The 43-year-old native of Uruguay, who gave up a cushy job as vice-president of Citibank's international corporate debt department in New York in 1989 to run Gethal, expected his certified wood to fetch a premium of 30% over noncertified. But so far, he's had to content himself with premiums of just 7.5% on average.

More buyers may materialize soon. A bill now going through the New York City Council will require the city administration to buy FSC-certified wood for all public contracts, when available. ''This is the first bill of its kind in the U.S., but we would expect other local governments to follow suit,'' says A. Gifford Miller, the council member who drafted the bill. Many local authorities in Europe are already paying more to get certified wood.

MUCH TO DO. Gethal is just one example of how the certified wood movement is gaining ground in Brazil. Of the 241 companies that have secured the FSC's seal of approval so far, 10 are in Brazil. And a million hectares of the Amazon forest are now being readied for certification.

But there's still much more to be done before the planet's tropical forests will be safe. About 15% of the Amazon forest has been destroyed over the past three decades. In Asia, just 30% of the tropical forest is left. Much of the blame goes to local buyers, who typically are far less picky than Home Depot. So the FSC and its allies face an uphill struggle. Then again, nobody ever said creating an eco-friendly business would be easy.

By Jonathan Wheatley in Manicore

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Saving the Forest for the Trees (int'l edition)

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