Perspectives on Agenda 2020.

I find it interesting that in ours, of all industries, we still often can't see the forest for the trees. We all get so caught up in our particular company challenges that we don't see broader issues facing our industry. So let's take a step back for just a moment and take that wider look.

In the United States, we have the largest and most productive forest products industry in the world. We are in the largest market and the most product-oriented society on Earth. All of our products are made from renewable materials. We recycle more than any other major industry. And we manufacture products that society wants, needs and uses regularly.

Yet despite all of the wonderful things we deliver to society, the U.S. forest products industry-as a whole-delivers little or no value to our shareholders. Our returns are unacceptable and have been for years. We are faced with over-capacity driven by foreign competition, product substitution for paper, changes in the marketplace from "big box retailers," and impacts from our own inability to shut down old, less-competitive capacity.

We are experiencing a cost squeeze from two sides. From one side, there are cost increases driven by raw materials, new environmental and social regulations and a high domestic wage rate. From the other side, foreign product costs are often lower, especially for hardwood, because tropical plantations can grow a tree to 80 feet tall in six to seven years versus 30 or so in the United States. When you combine that modern, hardwood-based mills in China and Indonesia are paying wage rates that are 10%-15% of ours, you have a formidable competitor.

For the past 10 years, the U.S. industry focused on mergers and acquisitions as the way to gain greater synergies and lower costs, and this has certainly produced many advantages. But if that is the way to financial heaven for our industry, it certainly is not apparent to me.

It's all enough to make you want to throw in the towel on the U.S. forest products industry. But before we do, we must take stock of who we are, what strengths we have, what history can teach us, and what me must do to find solutions to these broad challenges.

What the tropical pulp mills and paper mills in low wage rate countries are doing to us is exactly what we did to the Scandinavian countries starting in the 1950s. We grew pine trees in one-half to one-third the time it took them to grow a spruce or fir tree. We could land a ton of linerboard in Stockholm cheaper than they could make it. Yet, the Scandinavian pulp and paper industry did not fail and neither will the U.S. industry. They changed and we will change as well. They survived but their shareholder returns were not adequate. The question is "can we change smarter and generate decent returns?"

The solutions to our current situation are numerous and complex and provide some very difficult challenges. The industry must continue to consolidate to achieve market presence and economy of scale. We must run our companies and facilities more efficiently than in the past. We must become continually better at the execution of our day-to-day business. That is required just for survival.

Beyond those answers, however, one primary solution seems to rise above the others; namely the desperate need to advance new technologies in our industry. For an industry so dependent on technology, it is a sad state that we've advanced few-if any-new technologies in the last 25 years. It strikes me as a crying shame that although it's been some 28 years since I worked full-time in a mill, I can still operate just about any machine in our industry.

So we must use technology not only to assist us with operational excellence, but also with developing new value streams derived from forest-based materials. This is research, development and deployment that no one company can do by itself. This is about breakthroughs that come from interactions with universities, national labs and the best minds we have to offer. This is about taking steps that, above all, require commitment and courage.

Luckily, we have just the vehicle to drive these kinds of advances. In the mid 1990s our industry signed a compact with the U.S. Department of Energy (DOE), which we named Agenda 2020. Technology roadmaps to the year 2020 were completed. Projects needed to "close gaps" between current and future technology were identified and conducted. The partnership with DOE was successful, and it is clear that our national labs are a national treasure from which we must gain future advantage.

The Agenda 2020 committee made a presentation to the American Forest & Paper Association (AF&PA) board, and it was apparent to the members that the program was very successful on the scale chosen. Agenda 2020 had six task groups conducting a number of programs with total funding approaching US$ 30 million.

The AF&PA board then asked Agenda 2020 to change its focus to large break-through projects that no single company would do alone. We asked them to focus on specific areas such as highly productive sustainable forestry, cost reductions approaching 50%, new products from forest-based materials, and achieving a technologically advanced workforce. This group rose to those challenges.

The Agenda 2020 group held a Technology Summit in 2001 to learn from the best minds in the industry which breakthrough technologies presented the best opportunities. They then developed a portfolio management system with an evaluation tool and used this system to refine and redefine the technology platforms and focus areas that would best meet the challenge that we gave them.

The group started new programs. Many of the ideas have come from non-traditional institutions and other industries. The result has exceeded my expectations. The focus areas provide significant benefit to the industry and also have high societal benefits. The opportunities, in fact, may out-distance our ability to drive them and use them. After all, fund-raising and joint development efforts are not part of our historical strength. We must change that with Agenda 2020.

Agenda 2020 has defined six technology platforms (See Figure 1). The benefits from complete success and full implementation are significant (See Figure 1). Of course, there will not be complete success nor will there be full implementation. The members of Agenda 2020 have taken a hard look at these opportunities and believe approximately a 25% success rate is achievable. They say this is a conservative number because it does not account for new ideas not in the focus areas today. If they are right, this will double the industry net cash flow.

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At their recent Technology Summit II, held in Peachtree City, Georgia in late March, I encouraged the Agenda 2020 group to stay focused on finding technologies that are ready for deployment and to create a technology "deal" that would be compelling to all players. I challenged the group that any technology deployment project must balance the needs of all stakeholders-from government regulators and local officials to environmental groups and the community. Most importantly, however, the technology solution must meet all stakeholder needs but ultimately drive real productivity and profitability improvement to the bottom line. The day is long gone of technology for technology's sake.

Not only is this exciting, but frankly-as I stated at the Summit-it strikes me as perhaps the only game in town. To be successful and viable over the long haul, our industry must raise the funds to support the program, have the will to use the technology and ensure that our employees have the skills to practice the technology.

I believe we can and will do just that and, eventually through our commitment, drive a successful and profitable forest products industry in the United States.

Figure 1. Estimated benefits of fully deployed Agenda 2020 technology
platforms, including net cash benefits (column 1), savings of
non-renewable energy measured as barrels of oil (2), improvement in the
carbon balance (3), improvement in air quality (4), improvement in water
quality (5), decrease in solid waste (6), reduction in land
footprint (7), and number of jobs created (8).


PLATFORM                                   NET CASH $  TNRG BBL

                                            US $MM     MM Bbl/Yr

1-Advancing the Forest "Biorefinery"        8,849.00    175.72

2-Technologically Advanced Workforce        2,180.00     16.56

3-Breakthrough Manufacturing Technologies  16,895.00    313.02

4-Positively Impacting the Environment        416        39.98

5. Wood Products Revolution                 4,902.00     13.67

6-Fiber Recovery and Utilization            1,200.00     13.66

                 Overall                   34,442.00    572.621

PLATFORM                                   C-BALANCE   AIR IMP

                                           MM Tons/Yr     %

1-Advancing the Forest "Biorefinery"         153.7       100

2-Technologically Advanced Workforce          7.6        3.5

3-Breakthrough Manufacturing Technologies    41.74       45

4-Positively Impacting the Environment         14        145

5. Wood Products Revolution                    0          0

6-Fiber Recovery and Utilization               10        10

                 Overall                     227.04     303.5

PLATFORM                                   WATER IMP  SOLID IMP

                                               %          %

1-Advancing the Forest "Biorefinery"           0          0

2-Technologically Advanced Workforce          3.5        3.5

3-Breakthrough Manufacturing Technologies     45        27.5

4-Positively Impacting the Environment        50         155

5. Wood Products Revolution                    0         30

6-Fiber Recovery and Utilization              20         20

                 Overall                     118.5       236

PLATFORM                                       LANDFOOT       # OF JOBS

                                                 Text           M Jobs

1-Advancing the Forest "Biorefinery"        Slight Decrease     166.7

2-Technologically Advanced Workforce

3-Breakthrough Manufacturing Technologies  Moderate Decrease     -10

4-Positively Impacting the Environment     Moderate Decrease      0

5. Wood Products Revolution                    No Effect         20

6-Fiber Recovery and Utilization            Slight Decrease       0

                 Overall                         2.917          376.7

IN THIS ARTICLE YOU WILL LEARN:

* The economic pressures facing the U.S. pulp and paper industry.

* How Agenda 2020 can help the industry improve its competitiveness.

ADDITIONAL RESOURCES

* Go to www.afandpa.org and type in "Agenda 2020" in the search engine.

A.D. "PETE" CORRELL, GEORGIA-PACIFIC CORP.

ABOUT THE AUTHOR

A.D. "Pete" Correll is chairman and CEO of Georgia-Pacific Corp., Atlanta, Georgia, USA. Correll joined Georgia-Pacific in 1988 as senior vice president, pulp and printing papers. He was named chairman and CEO in 1993. PIMA named Correll its Executive of the Year in 1999.