| John Luke,
continued
Suffice to say we're very excited about
our move and have been overwhelmed and, indeed, humbled by
the warm welcome we've received! All of that being said,
Mead-Westvaco is not new to Virginia. Some 2,000 of our
23,000 employees are already based here-at our large
paperboard, converting, and specialty chemicals facilities
in Covington and Low Moor, our packaging plant in Louisa and
corporate offices in Richmond. We also own about 165,000
acres of Virginia forest land. A few years ago, our company
owned a total of 3.2 million acres of timberland. Since
then, we've divested 2 million of those acres, bringing our
total down to 1.2 million. Of the 2 million acres we sold,
1.5 million were attached to our printing and writing papers
business. We sold that entire business last year because it
had become peripheral to our strategic goals in packaging.
Appropriately, the forest lands that supported that business
went with it, although we'd sold some of them in advance
under a long-term fiber supply arrangement. We sold the
other half-million acres for a variety of reasons: because
they had important conservation value, because they'd become
logical for development, or because they'd become what we
call non-strategic. We saw them as non-strategic either
because they lacked potential for higher yields or because
they'd become too remote from our mills and other markets.
It no longer made good economic sense for us to own them.
Having now effectively repositioned our forest land
holdings, we currently manage about 1.2 million acres
including approximately 125,000 highly productive acres in
southern Brazil. The amount of forest land we own is
certainly an important issue for MeadWestvaco, but even more
fundamental is how forestry works as a component of our
overall business model, and sustainability is at the very
heart of that proposition. Today, we view forestry as a
business, and a business that is an important profit center
for our company. Our forests are important to own for our
mill operations, but we cannot lose sight of our obligation
to manage our forest lands as the valuable asset that they
are. We want our forestry activities to deliver the highest
possible returns, pure and simple. We've done a great deal
of work to enhance the economic potential of our forest
lands. Much of our experience, and ambition, stems from our
long tenure in Brazil, well south of the Amazon Rainforest
where we manage some of the most productive plantation
forests in the world. Today, we're planting trees not only
to produce wood fiber but also for use in solid wood
products. In fact, by the end of this year, 50 percent of
our trees will have been planted to yield high-value solid
wood, even though MeadWestvaco's mills need only small
amounts of it. We plan to increase our mix of trees for
solid wood in future years because our goal in forestry is
to maximize returns. But our strategies in forestry go well
beyond divestitures and changes in our mix of trees. One
reason so many of our acres became "non-strategic" over the
years was the enormous gains we'd made in forest
productivity through technological developments and a lot of
hard work. In Virginia alone, our annual yield of pine fiber
has quadrupled over the past 50 years, from about 1.5 tons
per acre to more than 6 tons, and it's still rising. Over
the years we've invested in science and technology to
generate such competitive advantage, and we will continue to
do so! Today, we are partners in a tree improvement
business, Arborgen. Through this venture, we invest in
developing varieties of trees with increased growth,
superior form and resistance to disease. Applications of
this biotechnology in our own tree plantations will allow us
to reduce our costs and increase our efficiency. In
addition, commercialization of these technologies over the
next five years will allow the sale of tree seedlings, or
even seeds, to other tree growing companies. Within our own
forestry group, we have developed technology for
mass-controlled pollination (MCP), that yields superior
genetic varieties of loblolly pine. After deploying this
innovation internally over the past three years, we have
just launched a commercial offering of MCP seedlings.
Incidentally, we've used this mass-controlled pollination
technology to develop a strain of loblolly pine specifically
for the Virginia Piedmont. It grows straighter and faster in
height and diameter than other seedlings and yields
approximately 25 percent more volume. MeadWestvaco owns
135,000 acres of pine plantations here in Virginia, and
we're planting these strains on all of them. At the same
time, we continue working to improve every aspect of our
forestry business. In many cases, we've borrowed some
improved agriculture techniques; in other instances, we've
invented new techniques ourselves. For example, we have
greatly improved our soil management practices by tilling
certain soils to make them more productive. We're also using
modern chemistry to enhance competition control, and the
effect has been dramatic. Not too many years ago, we planted
a typical acre of Virginia soil with 800 seedlings, hoping
to harvest about half of them. Today, we plant only about
500 trees per acre, but we harvest 90 percent of them. In
today's world, we've changed the way we look at forestry as
a business, but we have not changed our commitment to
leadership in forest stewardship, sustainability and safety,
to helping improve forest technology and management
practices throughout the industry. For example, since the
1980s we've worked, along with some of you, to minimize the
use of herbicides. We've run focused studies in
collaboration with leading producers like DuPont, Dow and
BASF and found that, with the right techniques, we often can
achieve near-optimal results using half or less the amount
of herbicide recommended on the label. And we also continue
investing in programs like the American Forestry
Foundation's Project Learning Tree, which helps educate
teachers, students and members of the general public about
the importance and complexity of forest sustainability. We
were among the leaders in crafting what we now know as the
Sustainable Forestry Initiative, and we helped shape, along
with respected non-governmental organizations (NGOs) and
private landowners, the Sustainable Forestry Board-that I'm
now proud to be chairing. We remain committed to
ecosystem-based forestry, to making many of our lands
available for recreation and other societal purposes and to
doing all we can to support and improve the communities
where we live and work. And we're equally committed to
ongoing forestry research and to sharing our knowledge and
know-how through Cooperative Forest Management (CFM) and
other programs. That, in essence, is MeadWestvaco's
strategic approach to forestry. But, as you know, growing
trees is not our primary business. Our company's primary
focus is on leadership in global packaging and packaging
solutions because it demonstrates that, today, the same
principles I've been discussing with respect to forestry
apply to almost every sphere of business. Almost every
business today confronts those same forces of globalization
and rapid commoditization, and the choice is somewhat clear:
a company can either join in the race toward commoditization
and develop products to compete on the basis of price alone,
or it can choose to play a different game. It can choose to
compete by offering greater value in the form of
differentiated, innovative, customized products and
solutions to each customer's most pressing challenges.
|
That describes
our overall approach to forestry, and it also explains why
our company's principal focus is now on premium packaging
and packaging solutions. One strongly positive effect of the
expanding global marketplace is the creation of a vast new
consumer marketplace throughout Asia, Eastern Europe, Latin
America and elsewhere. Many of our best customers-companies
like Anheuser-Busch, Avon, Coca-Cola, Procter & Gamble,
Sony, Unilever and many others-are launching products in
those markets to meet the growing consumer demand for wider
choice and better product quality. But these consumer
products companies can't do it alone. They need an effective
packaging partner because packaging is integral to how they
take their goods to market, present them on the shelf, keep
them secure and inform the consumer. MeadWestvaco is ideally
positioned to be these companies' packaging partner of
choice, working with them hand-in-hand to better understand
consumer needs and preferences. We want to contribute
effective products, services and strategies at every point
of what we call the packaging value chain from the
paperboard we produce in Covington to our addition of the
leading global packaging solutions provider, Calmar. It
starts with superior materials science and materials
expertise and extends to superior capabilities in graphic
and structural design, in sourcing materials and processes
around the world, in understanding effective brand
management strategies and in delivering the right packaging
solution for each customer, when and where they need it.
We're enthusiastic about the opportunities we see in
packaging in North America and globally. And we're also
enthusiastic about the opportunities we see in forestry.
It's also worth mentioning that almost half the paperboard
produced at our Covington mill is sold outside of North
America. So many of the trees we grow here in Virginia are
used in packaging for products sold around the world. And as
we change the mix of trees we grow, with a bias toward
producing higher-value wood, we are confident that the
expanding global marketplace will reward those efforts as
well. In today's world, it is more important than ever that
we earn the trust and have the support of our elected
government if we are going to compete successfully and win
in the global marketplace. We face a world today where many
countries' labor costs are lower than ours, where energy and
regulatory costs are lower, where there is no explosive
litigation burden, where many local markets are protected,
and where new manufacturing capacity is subsidized by
government. Overall, our costs-the true structural costs of
doing business here in the United States-are higher than
most all of our global competitors. While some of this
excess reflects the stage of the development of our society,
much of it reflects the burdensome costs we've imposed upon
ourselves over the past 30 years, a timeframe when we
thought we had the wherewithal to absorb these costs and
remain competitive. Now, we are realizing that we do not
have that luxury, and we need to redress some of the
excesses if we are to remain a viable, no less vibrant,
player on the world economic scene. While all of these cost
factors play a critical role in our nation's prosperity, two
issues are at the forefront: energy and trade. I don't think
it's possible to over-emphasize the importance of energy
resources in terms of our nation's ability to compete around
the world. Yet here in the U.S. we're facing huge energy
supply and related cost challenges. As a nation, we cannot
remain passive in our approach to this problem, nor can we
afford to get caught up in a game of incremental politics.
We cannot afford to sit idly by and watch our global
competitors tap new oil and gas sites and build new nuclear
plants while our government representatives in the U.S.
waste time debating yesterday's issues, hoping that the
problem will go away. Our nation has no sensible, coherent
energy policy, and we're paying the price every day. If we
don't come up with a remedy soon, manufacturers in all
sectors will have to shut down and relocate to other
countries where they'll have access to reliable and
affordable energy. Let's take a moment and consider the
situation with natural gas. Last year, the average price for
gas in the United States was $8.85 per million BTUs, and it
spiked to more than $14 after Hurricane Katrina. That
compares to about $6 in Japan, $5 in China, and $3 in India,
which is quite a difference. Why does gas cost so much more
in the United States? Well, U.S. government policies have
promoted the use of natural gas as an environment-friendly
energy source, and demand has grown, especially in
manufacturing, which now accounts for a third of our
nation's natural gas consumption. At the same time, the
federal government has made exploration and development of
new natural gas sources ever more difficult, if not
impossible. Beneath the waters of the U.S. Outer Continental
Shelf lies enough natural gas to heat 100 million homes for
60 years, and enough oil to drive 85 million cars for 30
years. But 20 years ago, when prices were much lower, a
federal moratorium placed 85 percent of the Outer
Continental Shelf off-limits to exploration. Growing demand
and limited supply-it's an obvious formula for higher costs.
The U.S. chemical industry alone has lost some 100,000 jobs
and $50 billion worth of business because of rising energy
prices in the past few years. Of 120 new chemical plants
being built around the world, one-just one-is being built
here in the United States. We're on a dangerous slope, and
we need serious and constructive debate on this issue! The
second issue is trade. Regrettably, at a time when the
forces of globalization are mounting and U.S. companies need
to focus on how they can compete more effectively, we see a
naive, protectionist sentiment emerging in this country, as
though global trade can only lead to lost jobs and inflated
deficits. Nothing could be further from the truth. With
trade agreements crafted and enforced to create a truly
level playing field, everyone stands to benefit because,
today, more than 90 percent of the world's consumers are
outside the United States, and in many nations their
purchasing power is growing rapidly. It's in our interest to
make sure no barriers exist to accessing these customers and
selling them our goods and services. Our nation's trade
deficit challenge is not driven by poor trade agreements,
but rather by our need to diligently enforce established
rules and hold our nation's trading partners accountable. We
can no longer tolerate high tariff and non-tariff barriers,
closed markets, products made elsewhere and dumped here,
foreign governments that subsidize manufacturing capacity
and tolerate intellectual property theft. All of these
practices are in direct contravention of stable trade
agreements and World Trade Organization (WTO) dictates. If
this goes unchecked, U.S. industry will suffer
unnecessarily, as will our economy. We can fix these
problems that threaten our future competitiveness if we are
serious and determined, truly recognizing that we are
operating in a "new world order." Clearly, we are living in
a great but challenging time. American forestry, like the
whole of the American economy, stands to benefit from the
expanding global marketplace. We must strive to make the
right choices, confront the new realities, and marshal our
historic creativity, resourcefulness and determination to
excel. And I have great confidence that, together, along
with constructive government engagement, we will do just
that, and I look forward to working with the VFA as we do
so. |
