Forestry Investment Blog

The first award under the Woodland Carbon Code group scheme validation has been handed out, marking a key milestone in the drive to promote woodland planting.

The Code is a voluntary UK standard which aims to ensure that so-called ‘carbon forestry’ projects deliver all of the carbon benefits that their creators claim. A number of woodland projects have been awarded the validation by the scheme, meaning that major cost savings will be available for those looking to plant trees in a bid to offset their carbon emissions.

Dr Vicky West, climate change analyst with the Forestry Commission – the body which administers the carbon code – said: “The 2009 Read Report on forests and climate change said that if an extra four per cent of the UK’s land were planted with new woodland over the next 40 years, it could be locking up 10 per cent of its predicted greenhouse gas emissions by the 2050s.

“We therefore hope this will help to stimulate more woodland planting across the UK, not just for the carbon benefits, but for all the social, economic and environmental benefits they provide,” Ms West added.

The group of 11 woodland projects which have been awarded Carbon Code validation are based in Dumfries and Galloway, the Scottish Borders and Northamptonshire and are all owned by Buccleuch Estates. The four other groups of woodland projects that are currently taking part in the pilot scheme are tipped to be awarded validation soon.

The award will help to safeguard global forests by encouraging sustainable planting, something which companies such as Greenwood Management are already hard at work on. The validation will act as an assurance that certain woodlands will be sustainably managed to the “high standards set out in the UK Forestry Standard and its associated Climate Change Guidelines for Forestry,” the Forestry Commission reported.

The UN has stressed the vital importance of forests in global development and the need to protect them for future generations at the Forum on Forests.

The formal forestry sector is estimated to contribute $468 billion every year to the global domestic product and the tenth session of the forum, held in Istanbul, took forests and economic development as its main focus.

Speaking at a news conference on the opening day of the two-week meeting, under-Secretary General for Economic and Social Affairs Wu Hongbo said: “The tenth session of the Forum is a timely opportunity to re-emphasise the critical role of forests in global development.

“This is especially important given the ongoing deliberations on defining a post-2015 United Nations development agenda with sustainable development at its core.”

At the meeting, government delegations will work with experts to discuss policy formation regarding the contribution forests can make to environmental sustainability, social enhancement and economic growth. The forum will also consider how to create adequate and sustained financing.

The important role that forests can play in the fight against climate change and improving sustainable forest management also feature on the agenda. Speaking at the briefing Turkey’s Minister of Forestry and Water Affairs, Veysel Eroðlu said: “They are very important in the fight against climate change because carbon dioxide gases are absorbed by forests and forests are producing oxygen.

“Therefore, they are like the lungs of the world. We have to protect our forests. We have to take care of them,”

Mr Wu underscored this point, stating that three-quarters of the freshwater used domestically, in industry and in agriculture comes from forestry catchment areas. He added: “Forests also provide critical ecosystem services.”

The Forum on Forests was established by the UN Economic and Social Council in 2000 and meets every two years, this tenth session is being held away from UN Headquarters for the first time.

Companies like Greenwood Management that encourage sustainable planting are going a long way to help ensure that forests can bring benefits for decades to come.

The future looks bright for Brazil with forecasts suggesting that the country’s investment rate could accelerate to as much as 25 per cent of GDP within the next five or six years.

A number of large infrastructure projects are due to be launched over this time, a senior minister from the government informed Emerging Markets, so these projects look set to bring some great returns in for the country.

Brazil’s budget and planning minister, Miriam Belchior, told the news source that the previous investment target of 18 per cent of GDP was not met due to the global financial crisis, but the country hopes to push things forward this year by five per cent or more.

Among the actions that are helping to achieve this are the roadshows, which Ms Belchior explained “helped to clarify things and iron out details with investors”.

She also rejected recent suggestions that the Brazilian government has breached some of its contracts regarding the electricity sector, dubbing the suggestions “politically-inspired criticism rather than fact”.

As the central government works hard to expand and strengthen Brazil’s core infrastructure, companies like Greenwood Management are continuing to stimulate investment in Brazil’s natural resources

According to Tui Travel’s accommodation wholesaler Hotelbeds, the tourism sector in Brazil is expanding more quickly than predicted.

The retailer has revealed that inbound sales for Brazil are expected to rise by 47 per cent over the course of this year, with outbound business tipped to increase by 40 per cent.

Such is the travel firm’s belief in the rising interest in Brazil that it has now set up dedicated sales and purchasing offices in Rio de Janeiro and Sao Paulo and plans to increase its Brazilian portfolio to include 1,900 hotels across the country by the end of 2013.

Hotelbeds’ Americas regional managing director, Javier Arévalo, told Travolution: “Brazil offers some of the most captivating and beautiful destinations. This coupled with the many events that Brazil will be hosting over the next couple of years makes for exciting growth opportunities ahead.”

The most popular destinations for visitors to Brazil last year were Natal, Rio de Janeiro, Salvador da Bahía, Sao Paulo, Fortaleza, Recife and Brasilia.

The Brazilian Tourism Board – which is called Embratur – has announced that it plans to increase the number of international arrivals to 10 million by 2020, a huge rise from the 5.4 million visitors recorded in 2012.

Boosts to the tourism sector are coming at a time when Brazil is investing heavily in its infrustructure. International investors are set to benefit from this, but those looking for alternative investments are finding that companies like Greenwood Management offer a more sustainable investment option by allowing people to support forests in Brazil.

Investing in forestry through a direct investment scheme, such as those run by Greenwood Management, is superior to investing in a forestry investment fund, which operates more like a REIT and offers fewer benefits.

There are many ways to invest in forestry and they all carry a certain level of merit. Whichever way you choose to invest in this ethical asset class, you will probably make money and help the environment – providing the route you take supports sustainability. However, buying forest directly, by investing in an existing, operating and proven plantation, such as the one Greenwood runs in Brazil, could help you see profits much sooner.

Investing this way means handing over as little as EUR10,000 initially. This will buy you your own section of sustainable plantation. You will be safe in the knowledge that your asset is growing physically and that it can be harvested when the time is right. However, in the meantime, you will receive some returns from the trees already being harvested, that were planted some time before your trees.

This is the beauty of the Greenwood cyclical method – there’s always money coming in and your investment is used to support the entire plantation. You benefit from the same risk-averse nature and inflation-busting attributes that an investor simply buying their own forest does, but you won’t have to wait 40 years to see returns!

While the idea of investing in gold goes back centuries, investing in timberland, in any organised way at least, is a more recent development, but one that is just as good a hedge against inflation.

During times of economic instability, world banks all over the globe are seen ploughing their cash into gold bullion to try to protect it from the impact of the volatility. Those who have done so in the past ten years will have made a tidy return from this investment, but limiting investment to gold alone is problematic and risky.

Other hard assets, such as commodities including gas, land and forestry, not only usually grow in price in line with inflation, they also deliver returns due to their usefulness to human kind. Those who invest in gold do so under the preconception that it will always hold value. However its value could fall exponentially if, for example, it was no longer valued by humans in the way it is today. Timber, agricultural land and fuels, on the other hand, will never lose values in this way, over night, as we will always need these commodities in our daily lives.

Indeed, timber demand is increasing off the back of its attractiveness for use in building the homes and infrastructure needed to support growth in developing countries. Countries like China, India and Brazil are all importing huge amounts of timber and this will continue to drive prices up, potentially much faster than the rate of inflation in many regions.

A new report by the Carbon Trust entitled ‘Brazil: the $200 billion low carbon opportunity’ does a great job at encouraging investors in the UK to invest in green projects in Brazil. Those investing in projects like Greenwood Management’s plantations in the country, should welcome the report as an endorsement of their investment strategies.

The report has won the backing of the government, with Trade and investment minister, Lord Green, stating: “As countries like Brazil and South Korea look to further reduce their energy consumption, the UK is in a great position to lead the global transition to a low carbon economy.”

Although the report mainly focuses on the opportunities that UK businesses can take from the growing low carbon economies, individual investors can also enjoy the growth opportunities that are presenting themselves in Brazil. For example, news that the Brazilian government is building millions of new homes and that sustainable timber will be used in many of these construction projects, is an example of the money to be made by investing in managed forestry.

Projects like the non-native plantations being grown by Greenwood Management are likely to see demand for their timber products soar as Brazil’s green economy develops. Also, the sustainable use of timber in the construction of various London 2012 Olympic venues could lead to more demand for sustainable timber for the Rio 2016 Olympic project.

Although some ecologists have some reservations about the role of plantation forestry in helping to reduce deforestation, we consider sustainable plantations to be vital to the protection of the world’s vulnerable forests.

Plantations, providing they are managed with a high regard for sustainable practices, help to reduce the dependence on natural forests for timber products. In Brazil, for example, the charcoal produced from plantation timber is used in the country’s booming steel industry instead of charcoal produced by burning native rainforests – that has to be a good thing.

In addition to this role, plantations also have the added benefit of increasing the amount of land given over to forestry. In countries all over the world, plantation forests, which are managed sustainably, are providing valuable habitats for wildlife and, in many areas, peaceful, green spaces for the public to enjoy.

From our perspective, managed plantations can also help to demonstrate how successful managed forestry works. By observing how forests can be harvested and grown in a cyclical manner, communities living in highly forested regions can learn how to better safeguard the future of their own forestry industries.

The world’s largest timber investment management organisation (TIMO), Hancock Timber Resources Group, and Molpus Woodland Group, have bought a 1.88 million acre plantation from Oregon’s Forest Capital Partners.

Hancock, which is based in Boston, has purchased some 1.35 million acres of timberland, which is spread across a number of states, including Idaho, Washington and Louisiana. Molpus, which is based in Mississippi, bought the remaining 534,000 acres in Idaho, Minnesota and Louisiana.

The timberland that has been traded between the TIMOs were accredited by independent third parties as being sustainable and both Hancock and Molpus have claimed they will keep this accreditation up.

Although the value of the deals is not known, Forest Capital has stated that most of its employees will be transferred to the buying TIMOs through the deal and its total portfolio was valued at $1.9 million this time last year.

The demand for sustainable sourced timber is growing at the moment, making it an attractive prospect for investors. Emerging economies, such as India and China have driven up prices and demand is set to increase even further in the coming years.

TIMOs such as Greenwood Management allow investors to affordably invest in timberland, while seeing returns far sooner than they would if they bought and managed their own timberland.

Ghana’s Forestry Commission has announced that the country plans to replant some 30,000 hectares of forest land each year in an effort to try to replace forest that has been destroyed.

Samuel Afari Dartey, the CEO of the Forestry Commission, made the pledge at the recent International Tropical Timber Organizations’ (ITTO) timber tracking conference. He said that the move will help to reduce the impact of the illegal timber logging activity that has been taking place in Africa in recent times.

He told delegates from all over Africa including Cameroon, Congo, Gabon and the Central African Republic – who were attending the conference alongside representatives from the UK, Germany and the US – that measures to identify the origins of wood products is a key to the fight against logging.

As well as the reforestation and plantation projects, other measures include initiatives to try to prevent the illegal supply of timber domestically.

Sustainable plantations, such as those run by Greenwood Management in Brazil, can help to provide alternative sources of timber, protecting vulnerable native forests.

Environmental activists are hoping that the changes to the Brazil Forest Code will not go through the Brazilian parliament.

The code has attracted a huge amount of criticism from farmers and land owners in Brazil, who claim that it is too heavy handed. However, environmentalists claim that – should the code be relaxed – there will be a huge increase in deforestation, back to the levels the Amazon suffered in the 1990s.

Paul Adario of Greenpeace, for example, told the Associated Press, “If this passes it will be a disaster for the environment, it will clearly lead to more deforestation and create an amnesty for those who have broken the law. I see only more destruction in the future if this becomes law.”

Although the bill is expected to be passed through the Brazilian Congress, the president, Dilma Rousseff, has previously said she will veto the changes to continue to protect the Brazilian rainforest – all eyes are now on her to see if she is true to her word.

We are also hoping the changes are vetoed and that the rules stay in place. With projects such as Greenwood Management’s plantations, which grow sustainably on non-forest land, there should be no need for the vulnerable and increasingly valuable forests to be targeted.

A recent article in the Financial Times by Nyree Stewart has advised those investing in timber to think about the risks and establish their expectations at the correct point in order to get the best from the asset class.

The article explains that investing in forestry has become more popular in light of the fact that the asset class is a good hedge against rising inflation. It is also very loosely correlated with the overall economy, as timber prices often rise during difficult economic times.

However, Stewart urges those considering investing to think carefully about the expected use for the timber they are investing in, and also to think about the region in which they are going to invest. In 2010, forestry covered over a third of the world’s land area, so the choice is enormous.

We would suggest that investing in sustainable plantations is one of the best ways to start investing in timber. The demand for sustainably produced timber is expected to outweigh supply before long and prices will be driven up as a result. Meanwhile, Brazil is a great place to invest at the moment as it prepares for the Olympics in 2016 and the World Cup in 2014. The demand for charcoal for the steel industry is booming, providing a growing market for the timber produced sustainably through plantations run by firms like Greenwood Management.

The latest Hardwood Wood Fibre Price Index, which is for the final three months of 2011, shows that hardwood prices rose by 5 per cent compared with the same quarter the year before.

The rise was the third highest ever recorded and shows that, despite some reports of falling wood prices, the overall trend is on the up. Although the overall price was down by 3.6 per cent compared with the third quarter of 2011, analysts remain positive that the timber prices will find their balance soon enough.

The news follows reports this week of a 4 per cent rise in timber exports from Finland, which is enjoying the effects of the increase in timber demand from emerging economies, such as India and China.

The Softwood Wood Fibre Price Index also rose by 1.3 per cent compared with the end of 2010, although it also dropped slightly from the highest point recorded in the third quarter of last year.

Overall, analysts believe that within the coming decades, the demand for timber products will exceed supply, as Europe, Asia and South America continue to demand more and more to fuel their expansion. As the demand increases, so will the price of timber, which will benefit those invested in forestry investment schemes like the plantation scheme that Greenwood Management runs in Brazil.

Don Miller of Money Morning has recently written an article pointing out the gains to be made through investing in timber stocks.

He writes that timber has outperformed equities and that returns have averaged some 14 per cent per year between 1987 and 2010. His argument is that timber investment offers a low-risk chance to make some cash, while supporting ethical projects that can even help to reduce deforestation in countries like Brazil.

His claims that forestry funds are lucrative are backed up with evidence from a range of sources, including The Campbell Group, which advises on timber investments and points out that timber’s 14 per cent gains tower over the average gains of 9 per cent for the Standard & Poor’s Index 500, while offering a lot less volatility to boot.

He added that forestry investments have proven strong in the most challenging of economic times in the past, with timber prices growing by 233 per cent during the Great Depression, while the stock market plummeted by 70 per cent. With figures like these, it is not difficult to see why investors are ploughing their money into forestry funds.

Meanwhile, firms like Greenwood Management, which operates sustainable plantations in Brazil, are offering investors the chance to own their own piece of plantation land and collect the returns generated once the trees reach maturity and are harvested.

A move by the Australian government to abolish the laws protecting forests in Victoria from logging have been welcomed by the forestry industry.

The government insists the focus will be on sustainability while the moves are intended to safeguard the long-term future of the industry in the region. It plans to do this by increasing the influence of the government-owned timber agency VicForests, which will now be responsible for ensuring that only a sustainable amount of timber is felled each year.

In a bid to increase investment in the industry, the government is also planning to increase the length of native timber contracts from the current five years cap, to 20 years. The new plan also involves a possible review of timber legislation and the allowing of ‘ecological thinning’ of certain areas of forests.

Peter Walsh, Australia’s agriculture minister, said that Victoria’s natural forests are a “magnificent and renewable resource” that could be the basis of a thriving industry, with plenty of longevity. He added, “There is absolutely nothing sinister in this. It is about, in the areas that were going to be logged, giving certainty to the industry and making sure forests are managed appropriately.”

Providing forestry is managed sustainable, it can provide a livelihood for communities while protecting the long-term health of a forested region. Plantation projects such as those operated by Greenwood Management, a forestry investment company, in Brazil, can also help to increase the volume forested land and protect natural forests from illegal logging.

The world’s largest paper and packaging firm, International Paper, is doing its bit for sustainable forestry.

It has announced the relaunch of its Copier Grade paper product in the coming few weeks, which will be accredited by the Forestry Stewardship Council (FSC). The FSC certifies forests and forestry product firms if they adhere to a wide range of sustainable and responsible forestry management criteria. The FSC mark has been designed to help consumers to choose ethically produced products.

The paper for the Copier Grade product is made from trees sourced entirely from International Paper’s own plantations in Brazil, which it has complete control over in terms of forestry management practices.
No wood from any native Brazilian forests is used and the plantations are certified under the Brazilian forest Certification Programme and the PEFC.

Planting sustainable plantations of non-native trees in Brazil is an effective way to safeguard the natural forests that need to be protected for biodiversity, habitat and carbon sequestration reasons.

Those interested in investing in these kinds of projects can buy up a piece of plantation land in Brazil through Greenwood Management, which offers ethical forestry investment products in Brazil.

Global Forestry Capital has announced the expansion of its Global Forestry Growth Fund to allow even more people to invest in its specialized investment fund.

The fund will now be available to investors throughout Europe, South America and the UK. It intends to provide returns of 8-10 per cent on an annual basis, which is an impressive claim. Jose C. Garcia, Global Forestry Capital’s Director, said, “Current results are exceeding all of our expectations, with a growing interest from a wide array of investment markets.

“We have recently signed important strategic alliances with very successful and experienced local partners across the globe, and look for this expansion into the rest of Europe and Latin America to accelerate this growing trend,” he added.

It seems that investors really can’t get enough of alternative investments at the moment, as they remove vast amounts of cash from the volatile stock markets and search desperately for that elusive ‘safe haven’.

Mr Garcia explained, “I truly believe our current rapid development is also due to our proposition’s minimal correlation to the global markets, whose present volatility has resulted in the growing awareness of alternative assets in the investment community.”

Although forestry funds can diversity portfolios, an even better way of avoiding correlation with the markets is direct investment in forestry through a specialist product such as that offered by Greenwood Management.

Greenwood has several plantations of non-native trees in Brazil, in which individual or institutional investors can buy a plot. The investors receive regular returns and Greenwood spends the investments on expanding its plantation business further, thus increasing returns for investors.

A report on the Phaunos Timber Fund in UK-based newspaper The Times has got us all talking. Analyst David Budworth can see both pros and cons for the timber fund, claiming forestry investment represents a good bet over the long term.

Examining the timber fund, Mr Budworth explains that the Alternative Investment Market (AIM) listed fund was a bit slow in the beginning, but is now fully invested and has paid its first dividend to investors. It’s total assets are valued at £393 million and are spread over many of the world’s most promising regions in terms of forestry investment opportunities, such as Brazil, Uruguay, the US and Indonesia.

UK timber prices increased by an impressive 38 per cent this year, while prices in some other regions struggled to keep up with those figures. However, the article backed forestry investment as offering some unique attributes that make it a seriously attractive prospect at the moment. Investing in trees is flexible in that if timber prices are low at the point of tree maturity, investors can simply wait it out until prices rise, by which time their assets will have grown (literally) even further.

If investors are really lucky, the value of the land on which the forests are growing will also have risen, offering some protection against inflation. These benefits are arguably even more noticeable for those directly investing in forestry, rather than through funds.

A growing number of direct investment opportunities are becoming available, through firms like Greenwood Management. These products allow people to invest smaller amounts directly into timberland and receive returns as and when timber is sold and income is generated. The initial investment capital is used to help fund the firm’s expansion and future projects so the process is ongoing and sustainable.

These direct investment options are also often preferable to funds as they offer medium-term returns, rather than having to wait for decades to see any income from a hefty investment. And let’s be honest, not many of us are in the positions to tie up tens of thousands of pounds for decades on end. Other longer terms forestry funds include the FIM Sustainable Timber and Energy Fund, but this also requires a minimum sum of £32,700.

One thing all these investment products have in common is their environmental credentials. Attracting private investment to timberland, particularly in developing countries, can dramatically help to reduce deforestation and safeguard the forestry industry for generations to come.

Investment is the key to cutting deforestation, according to a report published by the United Nations Environmental Programme (UNEP) that has – not surprisingly – attracted much praise from the forestry industry

The report, published in early September, argues that through an investment totalling just 0.034 per cent of global GDP, the world’s forestry sector could be completely transformed. The result of the increased investment could lead to the creation of an additional five million new jobs, along with drastically reduced carbon emissions by 2050.

Forests would absorb 28 per cent more carbon from the atmosphere than they do now with the help of investment totalling $40 billion a year. The cash could be raised, the report claims, through payments made by the public and private sector to landowners for maintaining and increasing forested areas.

The forestry sector would benefit hugely from this increased investment and it has welcomed the report, which helps to underline the importance of encouraging investment in forestry and projects that increase the amount of forested land on the planet.

Forestation is something that investment firm Greenwood Management is keen to promote. The company offers investors the chance to put their money into plots of land in Brazil that are run as sustainable plantations of non-native trees. The wood from these plantations is then used in charcoal production and in construction and furniture making – reducing Brazil’s reliance on its own valuable rainforests.

The report revealed that annual net loss of forested land has fallen from eight million hectares in 1990 to five million hectares. In some areas, the total land given over to forestry has actually risen – a trend that could spread globally with the help of the increased investment, claims the report.

Eduardo Rojas-Briales, the chairman of the Collaborative Partnership on Forests, lent his support for the report’s suggestions. He stated, “Optimal land use, further life cycle analysis, ecosystem landscape management, and governance are all key themes that will help unlock the full potential of forests in creating green economies.”

A cutting report by the NGO Global Witness, claims that the World Wide Fund’s Global Forest and Trade Network (WWF’s GFTN) is not strict enough and lacks transparency.

The GFTN was originally established 20 years ago to try to help create a global marketplace for sustainably produced timber and other forestry products. It has almost 300 members in 30 countries, but the report from Global Witness claims that its approach is too lax.

The report states that the entry requirements for members are too lenient and sites the fact that members are allowed to continue to handle illegally sourced timber for five years after they become members. The report claims that this rule is weaker than the regulations that have been established in countries in the US, Canada and Europe since the GFTN was set up.

The report states ‘Even companies involved in highly destructive activities, such as clearing natural forests to make way for plantations or buying wood products from illegal sources, can join and benefit from their association with WWF,” the report alleges.

WWF head of the programmes, George White, defended the GFTN but said, “As with any criticism, WWF is taking the allegations seriously and we intend to examine Global Witness’ recommendations in detail.

“Should we find any of them to be justified, we will respond appropriately, as we are constantly striving to improve our performance and accountability wherever possible,” he added.

The GFTN has helped to stop illegal logging in countries, such as Brazil, where more sustainable plantations of non-native trees are being established by forestry investment firms like Greenwood Management. These plantations offer alternative sources of timber and fuel and help to protect Brazil’s precious forests.