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16February2016ForestStewardshipCouncilFSCDisputeResolutionCentreViaEmail:dispute.resolution@fsc.orgToWhomItMayConcern:COMPLAINTABOUTTHEOPERATIONOFTHEFSCCERTIFICATIONSSYSTEM.ThisLetterofComplaintissubmittedonaconfidentialbasisduetothesmallsizeofthelocalforestryindustry in theGisborne,NewZealand area, and concernover possible personal andprofessionalramificationsasaresultofraisingtheseconcerns.Intermsoftheobservanceoftheprinciplesofnatural justice,wehavealsoemailedacopyofthislettertotheSamlingGroupofCompanies,basedinMalaysia.WeseekaninvestigationofthecomplaintbytherelevantcertificationbodyoftheFSC.BACKGROUND

WehavebeenretainedbyaclientwhohasexpressedconcernabouttheForestManagementFSCCertificationofHikurangiForestFarmsLimited(HFF)inGisborne,NewZealand.HFFmanagesabout25,000hectaresor16percentofthe154,300hectaresofthestockedforestareaoftheEastCoastregionofNewZealand’sNorthIsland.Duringthe2013-2014yearHFFhadaharvestedvolumeof780,000tonnes.HFFstatesthatapproximately97percentoflogsareexportedviaGisbornePort,withtheremaining3percentaportionoftheprunedlogvolumesolddomestically.HFFisamemberofTreeOne(NZ)LtdwhichiswhollyownedbyLinguiDevelopmentsBerhad.LinguiinturnisasubsidiaryoftheSamlingGroupofcompanies.HFFbecameFSCCertifiedinAugust2005.Specifically, we are aware of local stakeholder concerns about the forest managementcertificationofHFFinrespectofitscurrentrefusaltosupportthelocalstakeholder-backedinitiativeofawoodprocessing‘cluster’andcentreofexcellenceatthePrimeSawmillsite.1Asaresultofthis,localstakeholdersareconcernedthatHFFmaybeinbreachofitsForestManagementCertification in termsof itsability to fullycomplywith the10 internationallyagreedFSCPrinciplesandassociatedcriteriaofResponsibleForestManagement.2Further,theselocalstakeholdersareawarethattheFSCprinciplesandcriteriadictatethateveryoneinacertifiedcompany,fromseniormanagementtofieldworkers,actresponsiblyintheirjobsfromsocial(emphasisadded),environmentalandfinancialperspectives.

1http://www.ect.org.nz/assets/Uploads/ECT-ad-08PRINT.pdf2http://www.hff.net.nz/about.aspx

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WhileHFFpubliclystatesthatit‘iscommittedtomaintainingFSCcertificationinitsbusinessandmanagementpractices…itwillensurethatmanagementof itsresources iscarriedoutunderFSCprinciples’3this lettersubmitsthatHFFmaywellbeinbreachofPrinciple4andPrinciple 5 and its associated criteria as published by the Rainforest Alliance under theirinterimstandardforassessingforestmanagementinNewZealand.

BREACHOFPRINCIPLE4–Communityrelationsandworker’srights–tomaintainorenhanceforestworkers’andlocalcommunities’socialandeconomicwellbeing.WesubmitthatHFFmaywellbeinbreachofPrinciple4,specifically;

4.1. The communities within, or adjacent to, the forest management area should be givenopportunitiesforemployment,training,andotherservices.

4.1.5. The forest manager shall identify opportunities and implement actions appropriate tosupportregionalindustryandregionalcommunitieshavingdueregardtotheroleofforestryinruralandregionaldevelopmentandtheeconomic,social,environmentalandculturalrequirementsoftheFSC.

Comment: HFF owns and operates a land parcel of 30,000 squaremetres opposite PrimeSawmillforwhichitintendstoutiliseasa‘temporarylogstorageofamaximumof12,000tonoflogs’.InSeptember2015,thelocalGisborneDistrictCouncil’sEastlandCommunityTrustmadeitsbiggestinvestmentdecisioninitshistorybyapprovingaNZ$7.4millionpurchaseofthePrimeSawmillwithaviewtodevelopingawoodprocessingclusterthatcouldcreateasmanyas120jobsandinjectuptoNZ$7.7millionintothelocaleconomyoverthenextthreeyears.Gisborne has the second lowest personal income (NZ$20,600) and the lowest householdincome(only12%earnoverNZ$50,000).Theultimategoalofthewoodprocessingcentreofexcellenceistotrainlocalworkersinthetechnicaltradestooperatethissite.TheHon.JoGoodhew,AssociateMinisterforPrimaryIndustriessaid“greatercommunicationwillbeoneofourkeydriversinensuringtheindustrycanpulltogetherandtakeadvantageofthe opportunity for engineered timber… Greater onshore processing has the potential toprovideasignificantboosttoregionaleconomies.’4However,disappointinglyHFFhastodaterefusedtopubliclyandoractivelysupportthewoodprocessingcentreofexcellenceatthePrimeSawmillsitetherebyriskingcompliancewiththisassociatedcriteria.

4.2.7. Relevantpolicies,plans,recordsandoperationalproceduresareinplace:(1.a)‘Managers,employeesandcontractorsunderstandtheirresponsibilities.

Comment:LocalstakeholdershavequestionedHFF’scommitmenttotheseassociatedcriteriaduetothelackofpublicsupportforwhatmanybelievetobeaveryvaluabledevelopmentandsupportfortheroleofforestryintheregionaldevelopmentoftheGisborneregion.This

3http://www.hff.net.nz/downloads/HFFManagementPlanPublicSummaryMay2015.pdf4http://www.ect.org.nz/economic-development/prime/what-do-industry-leaders-say/

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isparticularlyrelevantinlightofthe16percentoftheforestryblockthatHFFmanagesintheGisbornesurrounds.

4.4. Managementplanningandoperationsshallincorporatetheresultsofevaluationsofsocialimpact.Consultationsshallbemaintainedwithpeopleandgroupsdirectlyaffectedbymanagementoperations.

Comment: HFF have stated in their HFF Management Plan – Public Summary5 that it ‘iscommittedtomaintainingFSCcertificationinitsbusinessandmanagementpracticesonalllandsand/orforestresourcesownedand/ormanagedbytheCompany.LocalstakeholdershavequestionedhowHFFcouldmaintainFSCcertificationwhenitspubicengagementisnotonlylimited,butalsonoteHFFhasnotpublishedany‘results’ofitssocialimpactintermsofitslogstorageoperationdirectlyacrosstheroadfromthePrimeSawmillsite that requires the support of, and supply from, forestry companies operating in theGisborneregionincludingHFF.

4.4.1 Inconjunctionwithlocalstakeholdersandotherinterestedparties,theFMEshallevaluatesocio-economic impactsassociatedwithforestmanagementactivities.Theevaluationshallbe inaccordancetothescaleandintensityofoperations.

Comment:DuetothesizeofHFF’soperationsintheGisborneregion(25,000hectares/16percentof the154,300hectares stocked forest area/harvesting780,000 tonnesonanannualbasis)thecompanyisconsideredakeyplayerinthelocalforestrysector.As such, local stakeholders have raised questions aboutHFF’s commitment to 4.4.1 as itssocio-economicimpactassociatedwithforestmanagementactivitieswouldbewellawareoflocalstakeholdersseekingandrequiringFMEsupportfor,andcommitmenttothesuccessofthe Prime Sawmill as a wood processing centre of excellence and its positive economiccontributiontothelocaleconomyfromwhichitsourcesitsworkforce.

4.4.2 FME shall demonstrate that input from community participation was considered and/orrespondedtoduringmanagementplanningandoperations.

Comment:LocalstakeholdersareverydisappointedatthelackofresponsefromHFFaboutsupportingthePrimeSawmillasahigh-vale,innovativewoodprocessingcluster.Thisisevenmorerelevantconsideringthe locationofaHFFwoodstoragesitedirectlyacrosstheroadfromthePrimeSawmillsiteasshownintheimagebelow.

5http://www.hff.net.nz/downloads/HFFManagementPlanPublicSummaryMay2015.pdf

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Furthertothis,HFFstatesthatitcurrentlyexports97percentofitslogsviathelocalGisbornePort,whichfromtheimagebelowshowstheportfacilitiesbeinglocatedontheothersideofthebayarea.

TohaveHFFmanagementdecidetolocatedalogstoragesiteacrosstheroadfromoneofthemostpositiveeconomicdevelopmentinitiativestooccurintheGisborneregion,withoutany

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demonstrationofconsidering,orrespondingtowidercommunityorlocalstakeholderinputisincredulous.

4.4.5.FME has documented in writing formal (required for large operations) and/or informalprocesses(acceptableforotheroperations)thatitwillusetoassesssocialissuesandconsultwithaffected stakeholders and adjoining landowners before, during and after forest managementplanning.

Comment:LocalstakeholderswouldwelcomeHFFpublicisingtheprocessthecompanyusesto assess social issues around its consultationwith affected stakeholders during and afterforest management planning, particularly in respect to its position regarding the PrimeSawmillinitiative.

Wewouldalsoquestionthatwhileassociatedcriteria4.4.5isapositiveaspectoftheFSCandits principles of responsible forest management, the principles of transparency aroundstakeholderconsultationasitaffectsbothpartiescouldbeenhancedthroughthepublicationofHFF’sassessmentofhowthecompanyhasassesseditssocialissuesandconsultationwithaffectedstakeholders.

4.4.6. The forest management shall facilitate and encourage meaningful participation ofstakeholdersinthedevelopmentoftheforestmanagementplansorequivalentinstruments.

Comment: There are significant concerns about HFF’s commitment to this associatedcriterion. Local stakeholders have expressed significant frustration at HFF’s seeminglyintransient position over its willingness to actively support the Prime Sawmill as a woodprocessingcentreofexcellenceanditspositiveeconomiccontributiontothelocaleconomyfromwhichitsourcesitsworkforce.WhilestakeholdersrespectthatHFF isaprivatelyownedcompany, thecompany iswhollyownedbyLinguiDevelopmentsBerhad–acompanylistedontheMalaysiastockexchange,andasubsidiaryoftheSamlingStrategicCorporationSdnBhdapubliclylistedentity,partoftheSamlingGroupofcompanies.We note that Samling’s corporate website states that “stakeholder engagement is thecornerstone of our communication policy” and that “…we spare no effort in cultivatinggoodwill among forest communities, not only for business sustainability but also to assistthemtobreakfreefromthecycleofpoverty…”6

The company’s website has also highlights Hikurangi’s successful recertification by FSC7,indicating that the ultimate parent company is well aware of and interested in the HFFbusinessinNewZealand.WewouldsubmitthatthisletterofcomplaintisconsideredasaCorrectiveActionRequest(CARs)whereimprovementsarerequired.

4.4.9.FMEshalleffectivelyrecordandrespondconstructivelytocommunityorotherstakeholdercomplaintsorrequests.

6http://www.samling.com/sthe.php7http://www.samling.com/certification.php

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WenotethisassociatedcriterionandwouldchallengeHFFtoactually‘respondconstructivelyto community of other stakeholder complaints or requests’ particularly around a positiveresponse to support the Prime Sawmill as an as a high-vale, innovative wood processingcluster.ConsideringthefundamentaltenantofPrinciple4istomaintainorenhanceforestworkers’and localcommunities’socialandeconomicwell-being,webelieveHFFability tocurrentlymeetthiscriterionwouldbechallenging.

4.5. Appropriatemechanisms shall be employed for resolving grievances and for providing faircompensation in the case of loss or damage affecting the legal or customary rights, property,resources,orlivelihoodsoflocalpeoples.Measuresshallbetakentoavoidsuchlossordamage.

Comment: Local stakeholderswould be interested in comments fromHFF regardingwhatmechanisms are in place to resolve grievances arising from the current positionofHFF inrespecttosupportthePrimeSawmill,particularlyashasoperationsdirectlyacrosstheroadfromthePrimeSawmillsite.Further tothis,asassociatedcriteria4.5 indicatesthat ‘providing faircompensation in thecaseoflossordamageaffecting…livelihoodsoflocalpeoples’.Localstakeholderswouldbeinterested inunderstandingwhatmeasuresHFFhave taken toavoidsuch lossordamage,particularlyduetothesignificanteffortandcosts(NZ$7.4million)onthepartoftheGisborneDistrict Council, the Eastland Community Trust and Activate Tairawhiti have expended toprogress the development of a high-vale, innovative wood processing cluster at PrimeSawmill.

BREACHOFPRINCIPLE5–Benefitsfromtheforest–tomaintainorenhancelongtermeconomic,socialandenvironmentalbenefitsfromtheforest.WesubmitthatHFFmaywellbecurrentlyinbreachofPrinciple5,specifically;

5.2. Forestmanagement andmarketing operations should encourage the optimal use and localprocessingoftheforest'sdiversityofproducts.

Comment:LocalstakeholdersbelievethatHFFmaywellbeinbreachofPrinciple5.2inrespectof‘encouragetheoptimaluseandlocalprocessing…’(emphasisadded).

As highlighted above in the commentary to 4.5, Gisborne District Council, the EastlandCommunity Trust and Activate Tairawhiti have invested NZ$7.4 million to progress thedevelopmentofahigh-value,innovativewoodprocessingclusteratPrimeSawmill.It is estimated that the cluster could createasmanyas120 jobsonsite and injectNZ$7.7millionintothelocaleconomyoverthenextthreeyears.Inthattime,thereisthepotentialtocreateasmanyas300jobsoffsitewithsupportingbusinesses.Intheshortterm,thesiteisexpectedtocreateatleast50jobs,andinjectaroundNZ$1millionintothelocaleconomy.8

8http://www.ect.org.nz/assets/Uploads/ECT-ad-08PRINT.pdf

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Gisborne has the second lowest personal income and lowest household income in NewZealand.ThePrimeSawmillsiteseekstoincreasetheaveragewageoflocalpeoplelivinginthecommunityinwhichHFFhasalicencetooperate.Additionally, the development of the Prime Sawmill site seeks to strengthen the localcommunityasahighproportionofthoseemployedinwoodprocessingareyoungerpeoplewithtechnicalskills.Ayoungerworkforcehelpscommunitiesretaintheirsportsclubs,schools,retailservicesandotherfacilities.TheforestryrelatedindustryinGisborneisoneofthetopsectorsdrivingthelocaleconomy,with9.7percentofthelocalemploymentattributedtotheforestryindustry.Italsoisamongstthehigherrevenuemultipliers–in2013alongithadaNZ$466millionimpactontheGisborneeconomy–bothdirectlyandthroughitssupportbusinesses.9

However,HFFcurrentapproachtosupportingwhatisoneofthebiggesteconomicinitiativesintheGisborneregion,isbestdescribedasuncooperative.Tomake thisPrimeSawmilla success, it isourunderstanding is thatPrimeSawmillwouldprocess450tonnesoflogsper10-hourshift.Workingona5day10-hourshiftbasis,thesitewouldprocess2,250tonnesperweek.Ithasbeenintimatedtousthattoachievethistargetof2,250tonnesperweek,HFFhasbeenapproachedtosupportthisinitiative,andbasedonHFF’spublishedfigures10,acontributionof750tonnesperweekrepresentsabout5percentofHFF’sweeklyharvestof15,000tonnes.AHFFcontributionof5percentwouldrepresentabout33percentofthePrimeSawmill’srequirements.Thebalancewouldbesourcedfromotherforestownersintheregion.

5.4.2.FMEshallsupportlocalvalueaddedprocessing.

Comment:LocalstakeholdersbelievethatHFFisatdirectriskofbeinginbreachofassociatedarticle5.4.2bynotsupportingthedevelopmentofahigh-vale,innovativewoodprocessingclusteratPrimeSawmill.There is a high expectation among key local stakeholders, including the Gisborne DistrictCouncil, Eastland Community Trust, Activate Tairawhiti that forest owners who havebenefitedfromoperatingintheGisborneregionshouldcontributebacktotheregion.ThereisalsoastrongargumentthatasHFFhasatemporarylogstoragesitedirectlyacrosstheroadfromthePrimeSawmillholdingamaximumof12,000tonoflogsonthatsite,HFFhastheabilitytorelativelyeasilysupplyonaweeklybasis750ton/representing6.25percentofthelogspotentiallystoredonthatsite.

It needs stating that both our client and local stakeholders recognise that HFF should becompensatedatmarketratesforthesupplyoflogstothePrimeSawmill.ItisalsorecognisedthatHFFisacommerciallydrivenentityandiscertainlyentitledtomanageitssupplychainoflogstoitscustomerbase.However,areviewoftheFSCPrinciple4and5ofthe Responsible Forest Management strongly indicates that the intent of the forest

9ibid10http://www.hff.net.nz/downloads/HFFManagementPlanPublicSummaryMay2015.pdf

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management FSC certification is towork constructivelywith local stakeholders formutualbenefits.WebelieveacomplaintagainstHFFintermsofAssociatedcriteria5.4.2iswarranted.

CONCLUSIONWeunderstandthatHFFunderwentitsfirstmajorfive-yearForestStewardshipCouncil(FSC)auditinearly2010.HFF successfullypassed themajoraudit completedby theSmartwoodprogramof theRainforestAlliancewithonly twominorCARs,andregainedFSCcertification for the following fiveyears.11WehavealsoseenthattheRainforestAllianceconductedaforestmanagementandchainofcustodyAnnualAuditofHikurangiForestFarmsLtdin2013.12WearealsoawarethattheRainforestAllianceFSCForestManagementReassessmentofHikurangiForestFarmsLtdinGisborneoccurredduring2015.13Local stakeholders would certainly welcome visibility on this 2015 Reassessment and anunderstandingofwhat stakeholder consultationwas conductedbefore, during and after the June2015fieldwork.HFF should be congratulated on achieving its Forest Management Certification, as well as itsoperationsinNewZealand.WherewedepartfromthatsupportiswhenlocalstakeholdersactivelyseekthesupportofanFSCcertifiedcompanyyetfindtheresponsedoesnotliveupto(intheirview)theFSCPrinciplesofResponsibleForestManagement.Itshouldalsobenotedthatthedevelopmentofahigh-vale, innovativewoodprocessingclusteratPrimeSawmillwasannounced inSeptember2015,andsothereassessmentbyRainforestAlliancemaynothavebeeninapositontoassessHFF’srelationshipwithlocalstakeholdersoverthePrimeSawmillinitiative.Despitethetimingoftheannouncement,localstakeholdersareconcernedabouttheintegrityoftheFSCPrinciplesinlightofHFF’spositionwhichappearstobediametricallyinconflictwithanumberofthePrinciples’associatedcriteria,aswellastheMissionoftheFSCitself.ItisthereforewithsomeregretthatbasedontheinformationandcommentaryprovidedinthisLetterofComplainttotheFSC,weseekaninvestigationintoHFFanditscompliancewithassociatedcriteriaofPrinciple4andPrinciple5.Yourssincerely,

CarrickGrahamManagingDirector.

11http://www.samling.com/certification.php12https://au.fsc.org/preview.fsc-forest-management-and-chain-of-custody-annual-audit-of-hikurangi-forest-farms-ltd-.a-596.pdf13https://nz.fsc.org/en-nz/policies/seeking-comment/other-consultations