Transcript Methods - World Forest Investment

Comparative Timber Investment Returns
for Selected Plantations and Native Forests
in South America and the Southern United States
Fred Cubbage, Rafael Rubilar, Jacek Siry - USA
Patricio Mac Donagh, Mirta Noemi Báez - Argentina
José Sawinski Júnior, Arnaldo Ferreira, Vitor Hoeflich - Brazil
Virginia Morales, Gustavo Balmelli, Gustavo Ferriera - Uruguay
Jose Alvarez, Pablo Donoso - Chile
Speech Presented at the
Southern Forest Resource Assessment Consortium (SOFAC) Meeting
May 30-June 1, 2005, Research Triangle Park, North Carolina, USA
Authors and Affiliations
Fred Cubbage
NC State University, USA
Rafael Rubilar
NC State University, USA
Jacek Siry
University of Georgia, USA
Patricio Mac Donagh
Universidad Nacional de Misiones, Argentina
Mirta Noemi Báez
Universidad Nacional de Misiones, Argentina
José Sawinski Júnior
Universidade de Contestado-Canoinhas, Brasil
Arnaldo Ferreira
Universidade de Contestado-Canoinhas, Brasil
Vitor Hoeflich
EMBRAPA, UFPR, Brasil
Virginia Morales
Instituto Nacional de Investigación Agropecuria, Uruguay
Gustavo Balmelli
Instituto Nacional de Investigación Agropecuria, Uruguay
Gustavo Ferreira
Instituto Nacional de Investigación Agropecuria, Uruguay
Jose Alvarez
Forestal Mininco, Chile
Pablo Donoso
Universidad Austral de Chile, Chile
Outline
Forests and plantations
 Rotations, growth rates, harvest ages, and volumes
 Factor costs and stumpage prices
 Capital budgeting analyses
 Sensitivity analyses
 Conclusions

Area of Natural and Planted Forests
for Selected Countries, 2001
Million Ha
600
539
400
204
200
5
34
1
14
2
1
1
22
0
Brasil
Argentina
Natural
FAO 2003;natural 97%
Chile
Uruguay
Planted
U.S.A.
Wood Production for Selected Countries, 2000
428
Millón M 3
400
300
200
132
103
73
100
7
4
24 11
2
4
0
Brasil
Argentina
Industrial Roundwood
FAO 2003; 54% wood fuel in the world
Chile
Uruguay
Wood Fuel
U.S.A.
Forest Plantations
and Sustainable Forest Management




Important industrial round wood source
 Represent ~ ¼ of industrial round wood supply
 Allows us to produce more wood on less area
 High rates of growth
Opportunity to conserve the natural forests
Helps soil recovery
Issues
 Requires knowledge and large investment $600$1000/ha
 Environmental conversion of natural forests, less
benefits
 Local communities
 Opposition to GMOs
Forest Plantations
Selected Literature
 Plantations decrease pressure on natural forests
 Binkley 1997
 Sedjo and Bodkin
1997, Sedjo 1991
 Store carbon, reduce global warming
 DiNicolla et al. 1997
 Inadequate for supplanting natural harvests
 Tomberlin and Buongiorno 2001
 Cossalter and Pye-Smith 2003
 Negative impacts on local people, employment
 Cossalter and Pye-Smith 2003
 World Rainfroest Movement 2005
18
16
14
12
10
8
6
4
2
0
16.2
FAO 2003, Siry and Cubage 2005
1.1
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1.5
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1.5
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1.9
C
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1.9
Sp
ai
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2.5
Th
ai
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3.1
In
do
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Br
a
U
.S
zil
4.3
.A
.
Million Ha
Area of Fast Growth
Industrial Plantations
Fast > 5 m3 / ha / yr
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.9
0.85
0.84
0.75
0.74
0.64
0.63
0.62
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A
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0.5
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Millón Ha
Area of Fast Growth
Industrial Plantations
FAO 2003, Siry and Cubbage 2005
Fast > 5 m3 / ha / yr
Plantation Species
and Representative Growth





Tropical and subtropical plantations
 Pine: 20-45 m3/ ha/yr
 Hardwood / eucalypts 30-60 m3/ha/yr
Temperate and boreal plantations
 Picea, fir, pine: 10-20 m3/ha/yr
 Hardwood: 10-20 m/3ha/yr
70% softwood / 30% hardwood
Native forests: 1-4 m3/ha/yr
1 m3~ 1 – 1.2 tons green weight; 0.4-0.6 dry tons
Average Plantation IRRs - Sedjo 2001
Region / Species
U.S. South - P. taeda
Pulpwood
Sawtimber
12.0
12.5
US PNW – Pseud. Menz.
7.1
7.1
Brazil Central - Euc. Sp.
20.2
15.2
Brazil South – P. taeda
15.6
17.5
Chile – P. radiata
23.4
17.5
New Zealand – P. radiata
11.9
13.1
S. Africa – P. patula
19.3
17.7
4.6
5.6
Europe – Picea abies
Methods







Select countries
 Southern Cone, USA
 Argentina, Brazil, Uruguay, Chile, US South
Select principal commercial timber species or prospects
– exotics and natives
Authors’ estimates of:
 Growth rates, typical current practices, genetics
 Factor costs and output prices
Develop cash flow analyses / spreadsheets
Capital budgeting analyses
Iterative review by authors and foresters in each country
Sensitivity analyses – reserves, land costs, subsidies
Rotations, Harvest Ages, and Harvest Volumes
Country/Species
Rotation Age
Harvest Years
Total Harvest Volume (m3)
AR-Pinus taeda – Corrientes
20
5, 8, 12, 20
600
AR – Pinus taeda - Misiones
20
5, 8, 12, 20
700
AR – Eucalyptus grandis
14
5, 14
560
AR – Araucaria angustifolia
28
10, 15, 21, 28
420
AR – Native forest unmanged
80
20, 40, 60, 80
20
AR – Native forest best mgt.
80
20, 40, 60, 80
60
BR – Pinus taeda, no thining
18
18
540
BR – Eucalypts grandis
15
7, 11, 15
600
BR – Eucalypts dunii
7
7
301
BR – Araucaria angustifolia
25
10, 16, 21, 25
450
BR – Ilex paraguarariensis
10
3-10
Leaves
CH – Pinus radiata
22
7, 11, 15, 22
484
CH – Nothofagus dombeyi
30
10, 15, 22, 30
540
CH – Nothofagus raul í
35
12, 18, 26, 35
560
UR – Pinus taeda
22
11, 15, 22
440
UR – Eucalypts grandis
16
6, 11, 16
480
UR – Eucalypts globulus
10
10
180
UR – Native perfect management
80
20, 38, 50, 65, 80
360
US – Pinus taeda planted
30
17, 24, 30
360
US – Pinus taeda natural
40
25, 33, 40
300
US – Pinus echinata
80
38, 50, 65, 80
320
US – Mixed hardwoods, South
80
38, 50, 65, 80
320
Input Costs, Prices, and Returns
Country/Species
Estab. Costs – Year 0-5 ($)
Price/m3 per Cut ($)
Total Returns ($)
AR-Pinus taeda – Corrientes
1125
0.35, 3.61, 5.55, 7.22, 30
6718
AR – Pinus taeda - Misiones
602
0.35, 3.61, 5.55, 7.22, 30
5390
AR – Eucalyptus grandis
787
0, 3.30, 5, 10, 13.33
5141
AR – Araucaria angustifolia
870
2, 5, 10, 20
7000
AR – Native forest unmanged
0
20
400
AR – Native forest best mgt.
14 every 6 years
20
1200
BR – Pinus taeda, no thining
636
20
12600
BR – Eucalypts grandis
600
2, 15, 30
13960
BR – Eucalypts dunii
800
12
3612
BR – Araucaria angustifolia
636
2, 5, 10, 20
8000
BR – Ilex paraguarariensis
600 + 200 per year
$0.08 per kg for leaves
5000
CH – Pinus radiata
547
20, 20, 45
17850
CH – Nothofagus dombeyi
600
2, 5, 10, 20
7950
CH – Nothofagus raul í
600
2, 5, 10, 20
8095
UR – Pinus taeda
500
5, 10, 30
11450
UR – Eucalypts grandis
500
2, 10, 25
9350
UR – Eucalypts globulus
500
9
1600
UR – Native perfect management
15 every 6 years
2, 5, 8, 10, 15
3420
US – Pinus taeda planted
600
5, 20, 40
10125
US – Pinus taeda natural
200
5, 20, 40
7900
US – Pinus echinata
200 + 10 for burning every 3 years
5, 25, 50, 60
14200
US – Mixed hardwoods, South
100 in years 15 and 25
5, 10, 20, 40
8550
Productivity of Plantations
Pine
40
35
30
m3/ha/yr
30
20
20
22
12
10
0
P Taeda
Brazil
Authors’ Estimates
P taeda
Argentina
P taeda
Uruguay
P radiata
Chile
P taeda USA
Productivity of Plantations
Eucalyptus
50
43
m 3 /ha/yr
40
40
40
30
30
18
20
10
0
E dunnii
Brazil
Authors’ Estimates
E grandis
Brasil
E grandis
Argentina
E grandis
Uruguay
E globulus
Uruguay
Productivity of Native Plantations
20
m3/ha/yr
18
18
16
15
15
10
Aracauria
Brazil
Authors’ Estimates
Nothofagus Nothofagus raulí
dombeyi Chile
Chile
Aracauria
Argentina
Productivity of Native Forests
10
m3/ha/yr
7
5
4
4
2
1
0
P taeda
USA
Authors’ Estimates
Hardwoods Subtropical Subtropical Subtropical
USA
w/o Mgt
w/ Mgt
Perfect
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Returns of Plantations, 2005
25
22.9
22.7
21.9
19
20
16.9
16
15
10
5.4
5
2.9
4
2
3.3
2.5
0
Brasil E
dunii
Brasil E
grandis
Uruguay E Brasil Erva
grandis
Mate
Land Expectation Value
8% discount rate; no land cost
Chile P
radiata
Brasil P
taeda
Internal Rate of Return
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Returns of Plantations, 2005
25
20
15.1
13.8
15
12.8
9.5
10
5
2
1.2
0.6
0.4
9.1
0.3
0
Uruguay P
taeda
Argentina E
grandis
Land Expectation Value
8% discount rate; no land cost
Uruguay E USA P taeda Argentina P
globulus
taeda
Internal Rate of Return
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Returns of Native Species / Plantations, 2005
12.4
12
10
8.6
7.8
8
7.4
7.2
6
4
2
1
-0.15
0
0.1
-0.03
-2
Brasil
Aracauria
Planted
Chile
Nothofagus
dombeyi
Planted
USA Pinus
taeda Natural
Land Expectation Value
8% discount rate; no land cost
-0.15
Argentina
Aracauria
Planted
Chile
Nothofagus
rauli' Planted
Internal Rate of Return
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Returns of Native Forests, 2005
5
4.3
4
3.6
3.6
3
1.7
2
1
-0.51
-0.31
-0.14
-0.11
USA
Hardwoods
Subtropical
Native
"Perfect"
Subtropical
Native with
Management
-0.02
0
-1
USA Pinus
palustris
Land Expectation Value
8% discount rate; no land cost
<0
Subtropical
Native without
Management
Internal Rate of Return
Sensitivity Analyses Assumptions
Country/
Species
Planted Land
Area (%) Costs
($/ha)
Subsidy
(%)
Higher
MAI
(m3/ha/yr)
Higher
Sawtimber
Price (%)
BR taeda
60
2500
Na
40
10
BR grandis
60
2500
Na
50
10
UR taeda
70
1000
39
30
25
AR taeda
70
1500
50
40
50
CH radiata
70
2000
50
30
10
US taeda
70
1500
50
18
10
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Sensitivity Analysis of Separate Scenarios,
Pinus Taeda in Southern Brazil, 2005
23.7
25
20
17
16.1
15
8.8
10
5
6.4
3.1
1.6
0
-5
Base, No
Land Cost
0.6
7.3
-0.9
Base, Only
Base With
Base With
Base, High
55% Net
Land Cost
Land Cost, Yield & High
Plantable
55% Net
Price, No
Area
Plantable
Land Cost
Land Expectation Value
Internal Rate of Return
8% discount rate; $2500/ha land cost
Land Expectation Value ($000/ha)
or Internal Rate of Return (%)
Sensitivity Analysis of Separate Scenarios,
Pinus Taeda in Southern USA, 2005
11
12
9.5
10
9.2
8
5.9
6
5
4
2
0.4
0.2
0
0.7
-1.1
-1.3
-2
Base, No
Land Cost
Base, only
70% Net
Plantable
Area
Land Expectation Value
8% discount rate; $1400/ha land cost
Base With
Land Cost
Base With
Land Cost,
70% Net
Plantable
Base With
Subsidy
Payments
Internal Rate of Return
Sensitivity Analyses – Summary Results, IRR
Country/
Species
Base
w/o
Land
Costs
Base,
Base
Less
with
Planted Land
Costs
Base,
Less
Planted
w/Land
Base
with
Subsidy
Payment
Base
with
Higher
Yields
BR taeda
17.0
16.1
8.8
6.4
Na
23.7
BR grandis
22.7
21.7
11.7
7.7
Na
27.5
UR taeda
15.1
14.5
10.2
8.9
17.3
18.8
AR taeda
9.1
8.4
5.5
4.5
11.8
14.2
16.9
16.1
9.8
8.4
23.5
38.0
9.5
9.2
5.9
5.0
11.0
12.3
CH radiata
US taeda
Biological, Political, and Financial Risk



Biological
 To date, exotic plantations bear less risk than natives
 Fewer native predators and pathogens
 Introduced biological and chemical controls
 Ants huge problem, other disasters possible, but rare
Political – US > Chile > Uruguay > Brazil > Argentina
 Environmental regulations
 Government stability
 Favorable investment climate
 Subsidies
Country risk (Economist Intelligence Unit 2005)
 Ranking of 100 countries in developing world
 Chile 4th, Brazil 51st, Uruguay 65th, Argentina 97th
Conclusions
Conclusions
Exotic Plantations Returns
10% to 24% base IRRs w/o land costs
Results similar to Sedjo, 2001
Add new information on reserves, land, & subsidies
Land in reserves decrease IRRs < 1%
Subsidies increase IRRs about 2%
Land purchase costs and sale without inflation at
end of rotation decreases IRRs ~4-11%
 Good land costs higher in Brazil, Chile
 But possible land appreciation costs
 Possibility for much greater returns in S America
 Early investors with cheap land costs have profited
most; more difficult now

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Conclusions
Native Species Plantations
Best 5 had 4% to 10% IRRs – Aracauria,
Nothofagus, P taeda
 Prosopis had returns <1%
 Less than exotics; better than natural stands
 Growth of ~4-5 m3/ha/yr seems to be key
 Assumes similar stumpage prices to exotics
 Grow in area that exotics will not
 More certain growth rates
 Better for small farms and agroforestry
 Erva mate good returns, but limited market

Conclusions
Natural Stands





97% of Americas
Little information on inputs, prices, management
USA best, at 4% to 8% IRR for natural stands
Tropical and subtropical natural stands
 Few commercial timber species: 0-20% of stand
 Estimated returns very speculative
 Unmanaged tropical stands likely a financial loss
 Selective management - returns of ~2% IRR
 Perhaps perfect management can yield 4% IRR
 Less survival risk, more commercial species risk
 Low IRRs, but not very negative LEVs, even at
8%, since there are few inputs
Preliminary, tentative conclusions
Conclusions
Forestry Sector Prospects
 Economic development opportunity – Forest sector GDP
 3-4% Brazil, Chile
 2% USA
 1% Argentina, Uruguay

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

2 new pulp mills each in Chile and in Uruguay
Many sawmills and panel mills
Modest expansion everywhere
 Most need and greatest prices – Chile & Brazil
 Large supply, low prices – Argentina
 New supply, unknown markets – Uruguay
 Stasis or slight declines – U.S. South
Least risk in most developed markets/countries
Conclusions
 Data poor, especially for South America
 Exotics in S America have higher returns than
native species and USA species
 Plantations require large amounts of capital
 Native plantations have lower returns, but some
IRRs approach stock market and other assets
 Degraded subtropical stands have low to
negative returns
 Better management key to make natural species
profitable at all
The Bottom Line
 Plantations profitable but costly to establish
 Forest reserves decrease returns modestly
 Land costs decrease returns greatly
 Current Southern Cone forest owners achieve
high profits, but with land opportunity costs
 Management beats neglect in natural forests
 Nonmarket and social values important for
broader analysis
 Regulation, incentives, certification, payments for
environmental services may be key to subtropical
forest retention
 Need much more research!
Comparative Timber Investment Returns
for Selected Plantations and Native Forests
in South America and the Southern United States
Fred Cubbage, Rafael Rubilar, Jacek Siry - USA
Patricio Mac Donagh, Mirta Noemi Báez - Argentina
José Sawinski Júnior, Arnaldo Ferreira, Vitor Hoeflich - Brazil
Virginia Morales, Gustavo Balmelli, Gustavo Ferriera - Uruguay
Jose Alvarez, Pablo Donoso - Chile
Speech Presented at the
Southern Forest Resource Assessment Consortium (SOFAC) Meeting
May 31-June 1, 2005, Research Triangle Park, North Carolina, USA
SOFAC_PLANTATIONS_30MAY2005