Friday, November 6, 2009

Why is timber investing so profitable?

Aerial view of Amazonia Reforestation planting area 2009
Sometimes it is a good idea to review why tropical trees have become such a good investment. It has only been in the last 70 years, starting in the 1940’s, that the idea of growing trees for sale and profit in international markets has become a major business. Since then, forestry companies, plantations and investors have been planting, buying, selling, harvesting and processing trees in an organized manner, making timber a recognized commodity that has managed to consistently outperform world stock markets. The attraction for many investors was seeing the pulp and paper industry panic after World War Two, as it had invested in pulp mills around the world. There was a sudden recognition that timber supplies were shrinking. Human and urban expansion, pressure from other industries like building materials, ranching and agriculture, and increased environmental awareness meant that the pulp and paper industry needed to start planting trees to feed their mills if they were to survive. The days of recklessly logging natural forests had come to an end.

Dexter Dombro with 2 month old tropical tree
The result of this recognition was an industrial approach to forestry. People could see sophisticated machinery clear cutting woodlots and processing plantations of all ages to feed not just the pulp and paper industry, but also providing lumber for the post-World War Two building boom and for the myriad other uses timber is known for. If anything, this pressure was even more noticeable where tropical trees were concerned. Many developing countries were slow to protect their natural resources, like Brazil where much of the Amazon forest has been devastated, or Haiti, where the forests were used for cooking fuel. Yet others have gone the other route, like India or Costa Rica, with strict forestry laws, huge national parks, and other wood management regimes which have drastically reduced access to timber. All of these factors proved themselves to be the signs investors were looking for. Busy timber markets and increased pressure on planetary forests signalled healthy demand, while evidence of huge resources being spent to plant trees meant that wood processing industries and woodlot owners were confident of their markets and profit margins. Investors correctly deduced that demand at the very best equalled supply, but more probably surpassed it. Years later trees, and especially tropical trees and hardwoods, are now recognized as extremely profitable investments.

Tropical trees are constantly monitored in a plantation
As if that were not enough, investing in timber means more than just profit. Timber is also one of those rare commodities that protects against inflation. Tropical trees grow even when they are not cared for. Using modern forestry practices and management techniques means plantations can produce non-compounded returns on investment of 30% to 40% a year over a 10 year period from biological growth alone, without even considering the value of the land or the fruits and other products that are profitable spin-offs. For example, the wood of rubber trees is valuable in its own right, without taking into account the value of the latex those tropical trees produce. The ability of tropical trees to absorb or sequester large amounts of CO2 on an annual basis from the atmosphere is a whole new and evolving industry in the fight against climate change. Best of all, tropical trees grow much faster than their temperate and boreal cousins, often leading to profitability in as little as 10 years time. Amazonia Reforestation represents all of the benefits mentioned here, so what are you waiting for? Make a green investment today!

4 comments:

  1. The timber industry definitely comes a long way. It survives multitudes of financial downfall, and rises to the occasion by reinventing its approach to business investments and mechanical processes. From a simple trade, it grows into a more sophisticated industry. This industry even survived high inflation by gaining an average of 22 % annually from 1973-1981. Up to now, the demand for hardwood and timber is still on the rise, since other industries discover other ways to use this natural material aside from home and structure foundation. [Sabrina Garza]

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  2. Nice blog , I vl take your advice on posting of timber investment, Thanks for sharing this Blog.

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  3. Thanks for sharing this of about Timber Investments

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  4. Thanks for sharing this of about Timber Investments

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