Forestry Investment Blog

Some brief but interesting forestry related news from Dell, the American computer company. It will start transporting two of its latest computer products from now on (netbooks) padded with bamboo, sourced from sustainable Chinese forestry plantations.

Dell will obtain its bamboo from a sustainably managed forestry plantation in China’s Jiangxi Province. The forestry plantation in China follows Forest Stewardship Council (FSC) guidelines. Dell is working with bamboo packaging supplier Unisource Global Solutions and the bamboo will replace the usual packaging (foam etc) that is used to protect their laptops etc. The full chain of custody, from forestry plantation to end user for the bamboo will be certified by the Forest Stewardship Council.

This change to forestry products is part of Dells overall intention to reduce its packaging and use more recyclable material such as sustainable forestry produts While its starting off using bamboo with just the two netbook items, Dell says it plans to expand the bamboo padding to more products starting in early 2010 and is also in the process of certifying the packaging for recycling so that recyclers will be aware that the material can be re used.

Forestry invest  is sponsored by  Greenwood Management

A significant problem with reference to deforestation, is the growth and use of Palm Oil in the food chain and for bio fuels. Notably in areas of south eastern Asia, palm oil has been responsible for the substantial reduction of rainforests through the indiscriminate clearing of the natural forestry.

Studies by the World Wildlife Fund have shown that increased demand for palm oil for use in consumer products is leading to extreme rates of deforestation in Malaysia and Indonesia particularly, where palm oil plantations have been found to contribute to illegal logging. The Palm Oil industry in south east Asia is a highly significant emmiiter of green house gases, due to the deforestation involved when clearing the forest.

Palm oil is almost everywhere in the food chain due its versatilty, and also down to its low cost. It is present in products as wide ranging as ice cream, cheese, ready made meals and biscuits. In fact it has been reported to be in 10 percent of all supermarket food. Some of the larger corporations are now waking up to environmentalists campaigning against the problem.

The “Roundtable on Sustainable Palm Oil” was formed five years ago to bring into force strict rules for certifying palm oil which is produced according to environmental standards and does not contribute to illegal deforstation, but many manufacturers have snubbed the more expensive, certified palm oil. As a result only 15% of major retailers and manufacturers surveyed in its latest industry report have commited to moving to sustainable palm oil.

However, Europe’s biggest biscuit manufacturer United Biscuits has recently signed a deal to purchase certified palm oil from for a minimum of two years. A welcome move.

Unfortunately, the industry as a whole has not embraced the sustainability issue like United Biscuits has done. The lack of demand has resulted in only 19 per cent of the one million tonnes of certified sustainable palm oil being purchased, and has allegedly prompted some manufacturers to even mix sustainably produced oils with non-sustainable oils to make it more profitable.

The sustainable forestry investment community stands fully against these practices.

forestry invest is sponsored by Greenwood Management

“Green enthusiasts”  worldwide are to be offered the opportunity to play game keeper and monitor satellite images of rainforests and report any illegal logging.

Satellite images will be frequently updated and anyone with internet access will be able to make instant comparisons with older images and identify destruction of rainforest almost immediately.

The green detectives will then be able to report the illegal deforestation to an international agency being created to monitor whether countries are meeting their commitments to reduce deforestation. Any state found to have broken its pledge will lose its share of a new global fund established by rich countries to pay nations for leaving their trees standing.

The forestry fund is entitled Reducing Emissions from Defoestation and Forest Degradation, or REDD for short and is valued at up to $30 billion a year.  REDD is expected to be be approved at the Copenhagen climate change conerence.

Google is helping to create the new online forestry detective tool, which is likely to be launched next year. Philipp Schindler, a spokesperson from from Google  said: “Our engineers are exploring how we might contribute to this effort by developing a global forest platform that would enable anyone in the world, including tropical nations, to monitor deforestation and draw attention to it.”  Mr Schindler recently spoke at a seminar on deforestation held in the U.K and attended by leaders and ministers from many of the largest rainforest countries.

Contributors to the Redd fund will pay about 4 Euros for each tonne of CO2 saved by reducing the rate of deforestation.
Norway just announced that it would show how Redd could work by paying Guyana up to 150 million Euros over five years to keep its trees. Guyana’s forests have been far less logged than in many tropical nations, and under the conditions of the new deal with Norway, Guyana could actually be paid for increasing deforestation. The agreement states that Norway will compensate Guyana if it does not cut down more than 0.45 per cent of its forests per year, but Guyana is currently felling trees at a far slower rate.

The Norwegian Government’s forest protection fund, said payments would only be made when countries could actually prove that they had reduced their annual rate of deforestation by an agreed amount. He said the targets would be raised every five years.

Brazil has significantly cut its deforestation in the past year by around 50 percent the but Brazil’s Forest Service(BFS) warned that the deforesatation could increase again unless Brazil  received substantial sums from REDD . The BFS warned   “People have to have some income and we need a lot of cash for the community to maintain the forest.”

forestry invest is sponsored by Greenwood Management

Funds and investment firms are becoming ever more acquisitive of land and forests in Brazil due to the potential for growth in demand for wood between companies in the pulp and paper, furniture and steel, among others.  Given the concern about a possible halt to acquisitions in forestland in the country, these companies believe that the practice of signing long term contracts, common in the northern hemisphere, may also become usual procedure in Brazilian territory.

The profile of investors is varied, from private companies such as JBS Friboi to pension  and investment funds. Obviously as investors, what brings then into this area first and foremost is the potential for investment returns from forestry in the long term – the cycle of a forest of eucalyptus is 6 to 7 years. “This is a market that brings together investors with liabilities consistent with a scenario of long-term returns, such as pension funds, for example,” said the president of Victory Asset Management, Humberto Grault Vianna de Lima.

Victory Asset is a fund manager that invests in  forestry in Brazil, the  company was created with funds totalling  $ 550 million. Currently owning 76 thousand hectares, of which 10 thousand hectares of eucalyptus plantations are in Brazilian Forestry.   Victory Assets plan to own 335 thousand hectares. “Our goal is to create the largest independent reforestation of the country,” said a company sokesperson

The appeal of the forestry investment market can also be seen in the operations of the NSG Capital in Brazil. The administrator plans to launch three forestry funds by January 2010, the first with a net worth of $ 200 million. The goal of the NSG is to raise a total of $ 400 million in the three funds, which will buy 170 thousand hectares of forestry planations. After the acquisition of an agribusiness firm,  the chairman of the NSG, Luiz Eduardo Abreu, said the company intends to manage forest assets to meet the demand for wood to produce cellulose and charcoal. “We believe the demand for wood will be greater than the current capacity of companies already investing in forests.”

The company already has about 10 thousand hectares of eucalyptus forestry, in an area that can be harvested in about three years. “The investment funds will only work with eucalyptus, but we are also looking at opportunities in other wood” says Abreu. The  forestry funds are also looking at the market for power generation using wood energy from forestry plantations.

The Asset Management of Canadian group Brookfield also manages funds with an area of 83 hectares in Brazil , of which  the current usage  is mainly for planting eucalyptus.  Plans to triple this plantationarea are in place.

The company’s president, Silvio Teixeira points out that forestry investments can be made anywhere in the country,  except the Amazon. Brookfield owns land in Sao Paulo, Parana, Minas Gerais and Mato Grosso do Sul, where there is a great demand for eucalyptus and pine.

forestry invest is sponsored by Greenwood Management

As this blog has been sponsored by Greenwood Management, I wanted to have a direct discussion with the management team  at Greenwood in order to get a feel as to how they saw the forestry industry at present, and what direction Greenwood Management saw forestry trends moving towards generally.

Also I wanted to get an overview of what they considered to be the best forestry investment opportunities within the industry, from the Greenwood Management perspective obviously, and how they viewed  the coming decade for forestry investors generally.

I have to say, I got the distinct feeling from our discussions that it was the wood energy and biomass markets that were the main focus in Greenwood Management’s planning for their future forestry plantations investments. The eucalyptus plantation investments have been well received by their investors and the end use market visibility in Brazil appears to extend as far as the eye can see. The drivers for demand here are abundantly clear to Greenwood Management and a significant programme of expansion is well underway.  A eucalyptus species,  specifically grown to produce higher growth rates by the Greenwood Management agroforestry research team in Brazil is expected to be a key product for the future.

What was also news to me was the Australian Oil Mallee project currently in Greenwood Managements research pipeline. I wasn’t able to draw much from Greenwood Management on this but they certainly appeared to be quite enthused by the product, with a promise of more tangible information as soon as they are able to pass it on.

From now on, I hope to keep in touch with Greenwood Management on a more regular basis with more meetings and updates.

So watch this space!

forestry invest is sponsored by Greenwood Management

Buying up forest property is a different kind of property investment and can be traced all the way back to when Tarzan and Jane first settled down seventy years ago.

Although they might find it a little crowded now as investors have turned to this sector as an area that has stayed steady in an otherwise chaotic market place. In the U.K  for example, while values may  have declined slightly in recent months, the sector has not been hit as hard and,  according to the latest Forest Market Report from UPM Tilhill and Savills demand from timber investors is still increasing.

Unlike housing values, which have plummeted, forest values have remained insulated from the general recession,  indicating a capacity to hold value on the strength of confidence in the increasing demand for timber and forestry products. Whilst not at the record highs of previous years, the figures from 2009 show a rise in sales in terms of transactions and area value. This year,  the number of forest transactions increased significantly with 88 forests bought compared with 50 in 2008.

In Scotland the Forestry Commission have reported a strong in interest from forestry  investors wanting biomass rather than timber. This interest reflects the growing biomass market, where demand is projected to far outweigh potential domestic supplies.  This is also good news for the Scottish Government since they announced their Renewables Action Plan last month.

In this year alone the market for biofuel and timber has doubled in the UK to £48.2 million. It shows that there has been a shift in importance on mixed plantations targeting both traditional and newly developing timber and biofuel markets.

Crispin Golding from Woodland Investment Advisor, UMP Tilhill, has estimated that in 2009 an additional 750,000 tonnes of biomass energy capacity (which is equivalent to almost 9% of the annual UK softwood harvest) is expected to come on stream in Scotland.

‘Investors not only appreciate the timber aspects of forests but also the wider credentials of forestry, for example as a source of sustainable bio energy, a green asset and a place to sequester carbon,’ added Golding.

It also doesn’t hurt that values per hectare have generally followed the trends set in 2008 with the 25-50 hectare category maintaining its outstanding value at almost €6000 per hectare, this is up 6% on 2008 and 40% up on 2007.

The area sold recovered to 14,600 hectares, which is more than double the area in 2008 and the average property sizes have also increased to 166 hectares, up 20% on last year.

The general economic slow down has not slowed this sector down although it has managed to squeeze the timber prices and all sectors of the market. In particular construction timber for new build housing where demand has diminished due to the recession. However on the positive side of the coin exchange rates have helped keep the domestic timber supplies competitive.

News just released that Amazon deforestation rates have  declined by 45% and is the lowest on record since monitoring began 21 years ago.

Slightly more than 7,000 sq km was deforested between July 2008 and August 2009.

The news is clearly going to be welcomed ahead of the Copenhagen summit on climate change.

The Brazilian space agency, which oversees deforestation rates in the Amazon, stated thatthe annual rate of destruction fell by 45%.

Brazils president, Luiz Inacio Lula da Silva was quoted as saying that the reduction in the level of deforestation was “extraordinary” and continued to say that climate change was the most significant issue the world had to deal with.

The Brazilian government must see these latest figures as a massive  boost to  Brazils  green credentials arriving with perfect timing, just before the Copenhagen summit in December.

The Brazilian governmentwill  no doubt be keen to highlight its efforts to reduce destruction in the Amazon as a vital component of its strategy to deal with global climate change . The government plans to achieve an 80% reduction target in the deforestation rate by 2020. Their environment ministry in Sao Poalo is quoted to be proposing that around half of a 40% cut in Brazil’s carbon emissions would come from reducing deforestation.

Greenpeace cautiously welcomed the latest news as important, however a spokesperson claimed there is still too much deforestation and the worlds deforestation targets are still too low.  Some environmentalists believe that the fall in deforestation may be connected to the economic downturn, and that when things improve, the Amazon could face renewed pressure.  Significant investments in forestry plantations in South America, particularly Brazil and Uruguay are continuing to reduce the pressure on the natural forests. The managed forestry plantations are capable of producing  lumber at a far higher rate per hectare than comwes from natural forests.  Each hectare of professionally managed forestry planatation is capable of produnind as much timber as thirty hectares of natural forest.     Many of the worlds largets fund mangers and private forestry investors are now recognising the opportunities arisng from investments in forestry.

The Walt Disney Company plans to invest US$7 million in forest conservation projects in the U.S.A, the Amazon  and the Congo Basin in an effort to reduce its greenhouse gas emissions.

Disney’s forestry  investment policy is being made in partnership with three conservation groups: Conservation International, The Nature Conservancy and The Conservation Fund.

Working with Conservation International, Disney will contribute $4 million to the Tayna and Kisimba-Ikobo Community Reserves in eastern Democratic Republic of Congo and the Alto Mayo conservation project in the Peruvian Amazon.

The projects will fund community forest management and sustainable development activities around the reserves, reducing deforestation from logging and slash-and-burn agriculture. The forestry investment is the largest-evercorporate contribution to reduce emissions from deforestation, according to Peter Seligmann, CEO and chairman of Conservation International.

“This commitment by Disney will help build confidence in these activities that generate such compelling climate, local community and biodiversity benefits,” he said in a prepared statement. Disney’s leadership points the way to the key role tropical forest conservation must play in emerging climate change policies.”

Disney will invest  a further $2 million for a reforestation project of native hardwoods in the Lower Mississippi Valley. The project is run by The Nature Conservancy. Disney also will invest $1 million in The Conservation Fund’s reduced impact logging operation in Mendocino County, California

Forestry invest is sponsored by Greenwood Management

Timberland Investment World Summit in New York.

Focusing in particular on the American timber markets and timberland prices, Credit Suisse believes log prices have bottomed in 2009 and they should improve in 2010-2011.   Credit Suisse go on to forecast a healthy outlook for forestry investment with further strengthening of timber prices 2013 to 2018.

The managing director at Credit Suisse, Chip Dillion, has made forecasts which are based on  an emerging market for wood-based biofuels, and the demographic push of baby boomers buying second homes and retirement places. He believes that the overall U.S. and global economic situation will improve over the next five to eight years, which would be consistent with recent historical cycles. Dillon, however, sugestes the years after 2020 for timberland returns as “more challenging” than the next decade. As ever, timberland investments for individual investors are not short term investments, most direct forestry investments are viewd on a 5-7 year time horizon

Forestry funds, the larger institutional investors  are attracted by the steady returns that forestry investments offer when compared to the volatility the stock market offers. Although some traditional timber markets may decline,  new markets for wood products and new types of trees may more than make up for the slack. Trees with very short rotation cycles are plantation-grown in the tropics today, and genetic engineers are working on cold-hardy trees. A eucalyptus that could be grown in the South America on a seven or eight-year rotation would change a lot of forecasts about energy prices and the future of timberland values in that region. The conclusions of the summit were that timberland is attractively priced now, because prices have been discounted due to lower stumpage and log prices.