What is it? How do you get it? Is it worthwhile?

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1 Chain of custody certification What is it? How do you get it? Is it worthwhile? Hamish Crawford Cailum Pty Ltd Presentation ti to: Carter Holt Harvey Sales & Marketing Meeting Melbourne, 16 April 2008

2 Chain of custody certification Why is it important? How does it work? Growth in forest certification and the availability of certified forest products Chain of custody requirements Implementing the requirements Getting certified

3 Background Global decline in forest areas Impacts of unsustainable practices Biodiversity Soil and water Communities and workers No recognition for good practice Trade in illegal forest products

4 Australian imports of forest products from high risk sources Australia imports $0.5 billion wood products from Indonesia and Malaysia alone each year Imports into Australia of wood products 2005/06 ($ million) 600 $ (millions) Paper manufactures Indonesia: Illegal harvesting estimated at 70-90% Malaysia: Illegal harvesting estimated at 35% 200 Paper & paperboard Wood-based panels 100 Miscellaneous 0 Indonesia Sawnwood Malaysia Source: ABARE (2007) Source: Jaakko Pöyry (2005)

5 The response independent certification Chain of custody certification CONNECTS Sustainable forest management Consumer decisions

6 Certification and the chain of custody Forest ransport logs Sawmill Transport sawn timber Furniture factory/ retailer End consumer Tr FM Certificate COC certificate - Assumes logs purchased at stump, timber delivered COC certificate Certificate chain

7 Certification - how does it work and what s available in Australia? Involves 3 stages - standards development, accreditation and certification Australian Forest Certification Scheme Forest Stewardship Council Standards d Australia development process Standards development FM Principles and Criteria COC PEFC recognition AS AFS AS COC FSC national initiatives JAS-ANZ accreditation Independent certification bodies Accreditation Independent certification bodies ASI accreditation Certification Woodmark SmartWood Interim standards applied Forest growers Processors Manufacturers Agents Retailers Forest growers Forest growers Processors Manufacturers Agents Retailers

8 FSC and AFS basic principles p of management FSC principles of forest stewardship AFS criteria for sustainable management Compliance with laws and FSC principles Tenure and use rights and responsibilities Indigenous peoples' rights Management system Public participation Protect and maintain biological diversity Community relations and worker's rights Benefits from the forest Environmental impact Management plan Monitoring and assessment es linkag Key Forest productive capacity Forest ecosystem health and vitality Protect t soil and water resources Contribution to carbon cycles 9 10 Maintenance of high conservation value forests Plantations 8 9 Natural, cultural, social, religious & spiritual values Social and economic benefits

9 Approach to certifying forest management Both FSC and AFS use a three-tiered approach to assessing forest management FSC AFS Tier 1 Principle Criterion Tier 2 Management criteria Management requirements Tier 3 Norms or Points of Assessment Basis of assessment Both approaches are FSC AFS performance-based 10 9 Principles Criteria 56 specific 40 forest criteria mgt requirements 193 specific requirements 166 points of assessment (Woodmark norms)

10 Certification what it tells us and what it doesn t! Certification can tell us Forest products are legally sourced Forest management is structured t and encompasses economic, environmental and social values and outcomes Products can be tracked back to certified forests What it doesn t tell us Wood quality, characteristics and fitness for purpose Environmental and social credentials of supply chain after the forest

11 Area certified certified forest products Growth in forest area certified in Australia since 2003 has been significant However, this has not yet been reflected in the quantities of certified forest products reaching Australia s end consumers Two major factors: Market focus many certified growers export their products and most imported products are not certified Chain of custody few fully certified supply chains

12 Certification current state of market Current area of certified forest in Australia is 8.96 million ha Chain of custody: Certificates Total AFS: 14 - AFS and FSC: 5 - FSC: 91 COC 8 FM/COC AFS DUAL FSC FSC AFS and FSC

13 Chain of custody elements of the system There are 5 parts to chain of custody requirements Material sourcing Certified, non-certified, re-cycled Production controls Quantities, conversions, segregation/batches, %-in, %-out, record-keeping Labelling On-product, offproduct, claims Documentation Invoices, shipping and sales Quality system Policies, procedures, staff, training, records, health & safety, continuous improvement

14 Material sourcing Approved sources All wood entering the chain of custody must be from approved sources Purchase specifications for certified material Purchase specifications are set to enable supplied certified material to be cross referenced to a valid certificate. Due diligence for non-certified material For non-certified raw materials, the company needs to undertake sufficient due diligence (described in documented procedures) to demonstrate that materials come from approved sources. Receipt and storage of material Quantities of materials are verified and recorded, and certified material is stored separately to non-certified material.

15 Material sourcing allowable sources FSC-Pure FSC-Mixed Post-consumer reclaimed Other reclaimed Controlled wood FSC Type of material AFCS Certified Category 1 - AFS certified wood or AFCS certified material Category 2 - includes post-consumer wood and recycled fibres Non-certified but and re-claimed pre-consumer by-products OK in "mixed" production Category 3 - urban forestry and non-wood waste material control systems Category 4 - Other wood material Illegally harvested wood Illegal operations or sources Wood harvested from areas where traditional or civil rights are violated Wood harvested from non-fsc forests where HCVs are threatened by forest management activities Wood harvested from genetically modified (GM) trees or wood Wood that is specifically prohibited Wood harvested from forests being converted to plantations or non-forest use

16 Material sourcing under the FSC system Forest certified to FSC Controlled Wood Standard Non-certified forests Controlled wood FSC-STD V2-0 EN Company undertakes controlled wood due diligence on sources FSC-Pure, FSC-Mixed, FSC- Recycled, FSC-Controlled Wood Chain of custody certified company FSC-STD V1-0 EN FSC-STD V2-0 EN FSC-certified forest Certified FSC Controlled Wood Certified FSC- Pure wood Chain of custody certified company Recycled wood Other recycled sources FSC-STD FSC-STD V2-0 EN FSC-Pure, FSC-Mixed, FSC- Recycled, FSC-Controlled wood

17 Production control Systems and accounting procedures to keep track of material flows through h the production process. The essential components of this are: Keeping account of the quantities of each of the different types of material inputs (certified and non-certified) for each production line. Keeping account of the relative changes in these respective inputs as they progress through the manufacturing or value-adding process (e.g. conversion factors, changes in moisture content ). Accounting for sales of products (certified and non-certified) that is, removals from stock inventories.

18 Production control material flow Does the production process use non- certified inputs as well as certified inputs? No Yes Can certified and non-certified material be physically separated in the production process? Segregated systems (Wood inputs to particular production line/batch 100% certified) Yes No Mixed systems (Wood inputs a mixture of certified and uncertified material) FSC transfer system Physical separation and/or marking of raw material Inventory control and raw material flow FSC credit system Threshold system (being phased out) Percentage Input/Output Rolling average % Average percentage FSC AFCS AFCS Volume credit FSC

19 Documentation Sales invoices to include: Date Name and address of buyer Description of certified products sold Type of certified products (FSC Pure, Mixed, certified %) (AFCS category of input material s origin, % certified raw material) Quantity of certified products sold Cross-reference to shipping documents (if invoiced separately) Chain of custody certificate number Shipping documentation: If products shipped separately to invoice, i shipping i documents contain same set of details required of invoices Sales records Records of quantities of certified products sold are kept Sales records specifically include the names of buyers

20 Labelling Labelling rules cover aspects such as: Entities that can use logos and marketing claims On-product labelling and claims Off-product labelling and claims Logo design specifications Process for licensing of logo use For FSC certified material, labelling rules are described in the chain of custody standard itself and in: FSC-STD STD FSC on-product labelling requirements For AFCS certified material, labelling rules for the use of the AFCS logo and the PEFC logo are described in separate documents: AFS Limited s Logo Use Rules Manual Issue 4 (2006) AFS Limited's PEFC Logo Use Rules Manual Issue 4 (2006)

21 FSC labels making sense of it all FSC-Pure FSC-Mixed FSC-Recycled Examples sourced from Examples sourced from FSC-STD (version 2.0) FSC on-product labeling requirements

22 AFCS labels making sense of it all Claims: 100% certified wood content From sustainably managed forests < 100% certified wood content Promoting sustainable forest management L b l h th f A t li F t St d d Ltd h i Labels shown are those of Australian Forestry Standard Ltd, showing appropriate licence numbers. Used with permission of AFS Ltd.

23 Labelling rules for FSC Percentage content Labelling allowed FSC-Certified (FSC-Pure, FSC-Mixed) 100% FSC-Pure 100% FSC-Mixed X%, where X% is between 10% and 100% X%, where X% is between 10% and 100% X%, where X% is less than 10% 0% Postconsumer recycled 0% 0% 0% Y% 0% Y% 100% can be labelled as FSC-Pure 100% can be labelled as FSC-Mixed X% can be labelled FSC-Mixed (X+Y)% can be labelled FSC-Mixed X% can be sold as FSC-Mixed (i.e. shown on invoice), but not labelled as FSC-Mixed Y% can be labelled as FSC-Recycled

24 Labelling rules for AFCS Percentage content AFCS certified (or equivalent) Labelling allowed Physical segregation system 100% 100% can have Logo plus claim "From sustainably managed forests. " Inventory control & accounting of wood flows X% < 100% (%In / %Out system) X%, where X% is between 70% and 100% (Minimum average % system) X% can have Logo plus claim "Promoting sustainable forest management." 100% can have Logo plus claim "Promoting sustainable forest management."

25 Quality system A structured and documented management system to maintain the chain of custody: Policies Documented procedures Responsibilities Scope of system Training Records Internal audits Occupational health and safety Final inspection Continuous improvement

26 Assessing compliance with standard Audit task to assess COC management against requirements of standard Involves collection and analysis of objective evidence Examination of documents Observations of practice and conditions Interviews with staff, contractors Independent peer review of certification reports C tifi ti d i i d b tifi ti Certification decisions made by certification body, not auditors

27 Putting it all together Certification is evolving Standards change No Australian FSC standard yet The market for certified products is evolving Certified forests certified forest products Market signals increasing - consumers, investors and other stakeholders Must be viable for growers, industry and consumers certificates expire Chain of custody certification the linchpin Certification is the smart option Supply chain certification a one way trend Supply chain certification a one way trend Essential tool in business risk management (supply and demand) Mechanism for business improvement

28 For further information For further information on chain of custody or forest management certification, please contact: Hamish Crawford Director Cailum Pty Ltd PO Box W37 Ballarat West Vic 3350 Tel: Fax: Mob:

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