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Investment

The Global Forestry Market

Global demand for hardwood has itself multiplied 25 times in the last 40 years, and with population growth rates higher than ever this trend will continue. With less than 13% of the world’s surface covered in forests, and concerns over global warming, there is now a global crackdown on illegal logging and deforestation. Supply is being severely restricted and these two factors combined will drive legal timber prices higher in the years to come.

Given the recent volatility in global stock markets, investors are looking towards commodities for security. Tropical forestry offers the ideal diversifiation from real estate and equity portfolios, providing a non-volatile market with high long-term returns on investment and a low risk-toreturn ratio.

“If you don’t feel comfortable owning something for ten years, then don’t own it for ten minutes.” - Warren Buffet

Why You Should Invest in Forestry

  • Environmentally conscious: sustainable forestry gives a unique opportunity to do something healthy for the planet whilst accruing a healthy capital gain.
  • Long-term, stable investment: with long growth periods and minimal demand / supply flctuations, forestry offers stable long term return projections.
  • Low entry levels: Forestry investments require little capital (compared to real estate) and being in a stable un-leveraged market offer more dependable less volatile returns.
  • Value rises with maturity: As trees grow, their marketable timber volume increases at an increasing rate, as does the woods’ value.
  • Little affected by macroeconomics: Irrespective of which government is in power or global currency flctuations, infltion and interest rates, the long-term factor of forestry and its fundamental applications produce a more constant growth rate.
  • Hedge against real estate & equity portfolios: For the reasons above, forestry’s stability makes it the perfect portfolio hedge against more volatile markets.
  • Flexible exit return dates: with a range of harvest dates forestry investments have great exit strategy flxibility. If the price were to fall one year, wait another year or 2, whilst your asset continues to physically grow
  • Potential tax advantages: such as SIPPs or CGT rollover relief, depending on project location and structure.
  • Demand & supply: Global consumption of tropical woods has multiplied nearly 25 times in the last 4 decades. Around 40m acres of tropical forest are being destroyed each year and not being replaced.
  • Future carbon credit market: some reforestation projects may be applicable for future carbon accreditation depending on location and project management.

Why Invest in Trees

The majority of the world's wood supply is sourced from native forests, which are not sustainably managed. Even though large areas of plantations have been established in many countries, the rate of planting has been insufficient to meet current and projected future demand. As the present scenario the Timber Demand in India is at very high hence, the need of commercial agro forestry is ever increasing. Melia Dubia is one of the fastest growing species among timber varieties on this planet. Melia Dubia originates from the Meliaceae family and is an indigenous species to India. These trees can be cultivated in all types of soil and requires less management practices.

The total area of industrial plantations suitable for commercial wood production globally is around 94 million hectares, of which over 70% is softwood. Plantation grown wood is estimated to account for 3% of the world's forest resources. Plantation wood supplies 10% of fuel wood and around a third of industrial wood used today. The significance of environmental degradation issues and effects of climate change it is need of the hour to promote agro forestry towards sustainable development. The economic benefits of timber investments will also provide relatively high returns for the low risk they carry.

The Australian Bureau of Agriculture and Resource Economics (ABARE) research report “Global Outlook for Plantations 1999” forecasts that "Plantations are expected to meet 35% of projected global demand for industrial wood by 2000, rising to 44% by 2020 and 46% by 2040. This level of production would require a significant increase in plantation area and the substantial gains possible through plantation productivity in all the regions globally."

Wood is the most preferred material for various end uses ranging from fuel wood to composite products. Thus wood can be replaced by wood itself which is considered an energy efficient material. The emphasis is to shift the source from natural forests to plantation timbers. The choice of species for different end uses is also changing from durable primary conventional timber species to short-rotation, fast-growing plantation species. Large number of wood based industries such as sawn wood and composite panel product manufacturers presently face acute shortage of raw materials and the supply–demand gaps are increasing day by day in alarming proportions.

The industrial demand for wood in Round wood equivalents in India is predicted to increase from 74 million m3 in the year 2005 to 153 million m3 in the year 2020 and side by side it is estimated that more than 50 percent of the total wood supply in the country will come from non-forest sources.

There are several options available to bridge the gap such as import of timber which is purely a short-term measure and generating tree resources within the country which could be a better idea as a long-term measure in sustainability terms, as well as a source of carbon stocking which is important from the ecological and environmental viewpoints.

© 2019 Adhithya Forestry Network.
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