You might have heard investing in timberlands is risky.
But did you know: Investment in private timberland in the U.S. and Europe has been quite profitable over the last 20 years. There’s been a very good, inflation-adjusted return, relatively low risk, and little correlation with other financial sectors. As part of this trend, pension funds have put substantial funds into Timber Investment Management Organizations (TIMOs). For example, Harvard University’s pension fund was a pioneer in timberland investment, alongside others such as Hancock and TIAA-CREF. At one point, Harvard was one of the largest non- industrial private timberland owners in the U.S.
Although these results from the north aren’t immediately and easily transferable to the Amazon, the Congo, or Indonesia, it does show that timberland investments can be a surprisingly good and even conservative investment with decent returns. In other words, trees always grow despite market fluctuations, and multiple products equal multiple revenue streams. This premise is a surprise to many government officials in tropical countries faced with deforestation, who are grappling with approaches to stopping illegal logging.
You might have heard protecting the rainforest requires a “hands-off” approach based on protected areas.
But did you know: There is very little economic incentive for landowners to sustainably manage forests since it is cheaper, easier, and quicker to cut trees, and convert forests to agriculture. Likewise, simply classifying an area as a national park—where no resource use is allowed—often does not work well, since hungry people are seldom kept out by under-funded governmental agencies.
A more pragmatic and functionally successful approach is to place forests under management where landowners obtain tangible benefits from following government rules. Here’s one example: in the Peruvian Amazon, recent studies showed that some of the lowest deforestation rates occur in forest concessions where you have active road-building, tree-cutting, and transportation. Under such models, forest is not converted to agriculture but remains as managed forest under regulation. People are making money, and following procedures. If companies stick to the law, they can manage a concession for 40 years, investing in infrastructure, deriving incomes, and having a steady supply of raw materials. The opposite approach—declaring an area off-limits—invites illegal activity, since it is often not protected effectively.
You might have heard carbon credits, natural capital, and non-timber forest products will save the rainforest.
But did you know: Natural capital accounting makes sense intellectually, but the market seldom recognizes it at present, and it is not a reality for most owners or managers of forest areas. It is difficult to put a value on natural capital in a way that will translate into peoples’ everyday lives. Policies that promote this concept still have little relevance with most actors in a practical sense, because economic concerns are so pressing. If a farmer can’t feed his kids and can’t get a loan, he has to cut down trees and plant yucca regardless of natural capital accounting, Kyoto protocols, or the academic value of all components of the native plants found in a forest.
You might have heard more stringent government regulations lead to better forest management.
But did you know: For government officials it’s natural to think that more rules provide a framework for control, but what happens is that the “good guys,” who follow these rules to the letter, are penalized. Although these regulations are well intentioned, they often put a burden on people who ultimately do what they have to do and apologize afterwards. Often, the most practical business plan—if you are earning money to feed your family—is to not abide by the rules. Following stringent rules results in additional costs that illegal or informal operators evade, thus making the products made by the “good guys” more expensive and less attractive to buyers.