By Tom Kelly
Editor and Publisher

Following is the first of a two-part story based on an interview with Henson Moore, who retires as President of American Forest and Paper Association in August, after 11 years at the helm.)

"The world of big companies will narrow down very quickly to three, four, or five at the most," as mergers and acquisitions continue in the forest products industry, said Henson Moore, president of American Forest & Paper Association (AF&PA), in a telephone interview with The Piney Woods Journal last month from his office in Washington DC.

Reflecting on the state of the U.S. forest products industry, Moore sees a continuation of current trends of divesting forest land ownership by traditional forest products companies, and of foreign competition for U.S. markets.

After a successful career in public life--in the Congress, as a deputy Cabinet secretary, a White House staff executive, and finally an 11-year run as chief of the nation's largest forest industry professional association and lobbying organization--Moore, a native of Louisiana, is retiring back to his home state on August 1. He will be moving to Baton Rouge, where the family is building a new home, and hopes to spend time with his eight grandchildren, possibly teach some college courses on public service, and do some writing for periodicals on regional and national economic issues impacting Louisiana.

Moore was born in Lake Charles and raised in Hackberry, a small community in Calcasieu parish, in Lake Charles, and Baton Rouge. He represented the Sixth Congressional District, consisting of East Baton Rouge parish, and the Florida parishes in southeastern Louisiana, as a Republican for 12 years from 1975 to 1987. He ran for the U.S. Senate, and lost a close race to Democrat John Breaux, then was out of politics for two years. He next served in the administration of the first President Bush, as Deputy Secretary of the Department of Energy for three years, and for the final year if the administration as Deputy Chief of Staff in the White House.

Moore became president of AF&PA in February, 1995, two years after it was formed by a merger of two former forest products organizations, the National Lumberman's Association, which was formed in 1902 and later became National Forest Products Association, and the American Paper Institute, formed in 1865.

Major forest products companies at an increasing pace have been selling their company-owned timber lands to a variety of forest land ownership entities. Some, such as Plum Creek, have come out of traditional forest products manufacturing backgrounds and shifted to forest land ownership and timber management as a supplier for manufacturers. Others increasingly are pure return-on-investment vehicles, i.e., Timber Investment Management Organizations (TIMO), and Real Estate Investment Trusts (REIT), with management for timber production only one of several economic objectives.

Asked what is driving the flight from forest land ownership by traditional vertically integrated companies, Moore said, "A number of things. In some cases, Chapter C Corporations (the traditional publicly-traded or family-owned corporation) are taxed at a 35 percent rate. The capital gains when they cut a tree and sell it, is 35 per cent. For anybody else when they do that, the tax rate is 15 per cent."

Especially in the publicly traded companies, analysts are forcing these C corporations into divesting timber because they are paying too high a tax rate, Moore said.

"There is also just a change in the business model," he said. In many companies, there is a definite trend toward de-integration, and moving toward specialization in both ownership of assets, and product manufacture.

"There is International Paper, announcing it is selling off some types of its paper business, selling its forest land, and it has said it will sell its building products businesses," Moore said. In the old days, ten or 15 years ago, the typical company owned forest land, made lumber and other wood building products, and made most grades of paper. "There are not going to be many companies left doing that. A dis-integration is going on."

What are companies doing with the cash from sale of forest lands? Again, many things, said Moore. "Pay off debt, try to become a bigger player in product lines they choose to remain in. I put that in the class of being business decisions that they make. You have a lot of factors driving it (divestiture of forest lands)--tax laws, business factors, the fact that in some cases you can now buy pulp cheaper from overseas than you can make it yourself. So, the company asks itself, if you're not going to make it yourself, why do you need the trees."

With divestiture of company-owned lands, and conversion of land to shopping malls, residential subdivisions, etc., is there any threat to the supply of timber to paper mills and building material manufacturers?

"There is a big debate going on about that," Moore said. "I think only history is going to show who was right and who was wrong. We've had the debate in our own board meetings here in Washington. People are concerned about it."

"Basically it boils down to the fact that the highest and best value of a mature pine or a valuable hardwood tree is going to be for the products we make out of it," he said. "Therefore, who owns the tree won't make any difference. They are going to have a good consulting forester who will know that a walnut tree is super for making furniture, so don't make pulp out of it, or just cut it down and burn it up to clear the land."

Moore said, "I think the greatest threat to our forest land we have in the United States was proven in a Forest Service study that became public in 2001, when they looked at the South and concluded that we're not over-foresting the South, we're not failing to plant trees, but you are losing forest cover because of development--shopping centers, golf courses, subdivisions. And so, that's really the threat, rather than who owns the land. A C Corporation, if it can get a lot of money by selling a piece of land, is probably going to do it, just like a TIMO, or a sole proprietor would do. The issue is not who owns the land. The issue is development pressure on our forest lands."

"If our forest products companies are not making an acceptable return on their investments, they are going to be pushed into selling their lands for development purposes. Therefore, our best hope of keeping our forests in forests is that our products companies are making a good profit. They would prefet to keep the land as a fiber supply for their profit-making manufacture."

Next: Forest certification and SFI, tax issues, impact of global changes in forest.

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