Forestry, and the plight of the world’s forests, has become something of a poster campaign for all that is wrong environmentally. Loss of species, climate change, the degradation of our natural environment, they all seem to have forestry issues somewhere at heart. Because of this there has developed an emotional attachment to logging and tree felling that is sometimes misplaced. Timber is a natural and sustainable resource that the global economy relies heavily upon. The answer to global issues with deforestation lies in the correct management of forests, and this is where the ethical forestry investor can make a difference.
Demand for timber
As a result of the global economic downturn, demand for timber and timber products has fallen recently. The construction industry for example, one of the main consumers of timber products, has shrunk dramatically with new builds decreasing by around a half in Europe and the US. The Food and Agriculture Organization’s (FAO) State of the World’s Forests 2009 report stated that “Wood demand is unlikely to reach the peak of 2005-2006 again in the foreseeable future."
But although demand has technically decreased, the picture is not as simple as that. With continuing crackdowns on illegal logging practices and a plethora of sustainable certification standards, demand for sustainably sourced timber continues to rise. Demand for timber is still huge and with a rapidly growing population, particularly in the developing world, looks set to continue. Sustainable forestry investment is struggling to meet this demand and as a consequence there are still plenty of opportunities available for investing in forestry.
Investment opportunities are particularly available for those who insist that their investment goes to support sustainable forestry management and best practice.
Maybe the first thing to bear in mind if you are considering investing in forestry is that, like growing trees yourself, it is not something that is done quickly, or with an eye to a rapid return on your investment.
If you want to invest in forestry you should count on at least 10 years before looking for a return, and often up to 24 years.
“If you don’t feel comfortable owning something for ten years, then don’t own it for ten minutes”
– Warren Buffett
Reasons to invest in forestry
- Investing in forestry is environmentally conscious; supporting sustainable forestry gives it a chance to compete against less ethical practices;
- There’s a profit to be made at the same time as doing something for the greater good.
- Investing in forestry represents a long-term, stable investment with good long term return projections;
- Forestry is not as prey to supply/demand fluctuations as other, short term, investments might be. There will always be some demand for these primary resources;
- Investing in forestry is accessible for the small investor due to its low entry levels;
- Forestry is not a volatile market or commodity, making returns more dependable.
- Value rises with maturity: As trees grow, so does their marketable timber volume. The longer you leave them, the more they’re worth;
- Macroeconomics has a minimal effect on forestry: Inflation, interest rates, currency fluctuations and local politics all have little effect on forestry;
- As a hedge against more volatile markets: The stability of forestry investments make them an ideal hedge against property or equity portfolios;
- Flexible exit dates: With a wide range of possible harvest dates, forestry investments have exit strategy flexibility. If the price falls one year, wait another year or two for the market to return. All of this time your physical asset will continue to grow;
- Investing in forestry has many potential tax advantages. Depending on the type of project you invest in you might be able to benefit from SIPPs, Capital Gains Tax relief or a variety of other tax breaks;
- Some reforestation projects will be applicable for future carbon accreditation, depending on location and project management, giving the investor an entry into current and future carbon markets.
Institutional investors also invest in forestry
The large institutional investors have long known of the benefits of forestry investment and have invested more than £22billion into forestry over the past two decades, via a combination of private pensions, foundations and endowment funds. These investments are now accessible to the small investor by way of forestry funds, or more directly through any of the hundreds of forestry investment companies that have sprung up over the last decade or so.
It is worth noting here that historically, timber investments perform extremely well when stocks are in a bear market. In 2008 for example, when stock indexes lost as much as 40 – 50%, the main timber index actually went up 9.5%. During the Great Depression of the 1930s, when stocks fell by as much as 70 – 90%, the main US timber index went up 233%. Timber markets are insulated from the ups and downs of the stock market and as such offer fantastic diversification opportunities to the canny investor.
There are lots of companies out there that offer a range of forestry investment opportunities to suit different budgets and different timescales. Their products range from short term teak investments at £15,000 to Amazon rainforest protection projects which start at around £40,000. The latter includes freehold of the land, annual income from dual revenue streams, carbon accreditation and a 40 year forecast average of 22% IRR.
Common forestry investment offers
- 12 year Melina investment plan for £18,000 with a projected payout of £104,189;
- 24 year accumulator plan for £18,000 with a projected payout of £1,059,312;
- 24 years income and wealth generator plan with a projected payout of £1,163,501.
These projected figures seem astonishing but the institutional investors have been realising profits far in excess of traditional investment plans for years. In the spirit of a new environmental awareness and a new approach to forestry management in general, maybe it’s time the little man got a slice of the cake.
- Bamboo investments
- Ethical forestry investment
- Global forestry investments
- Renewable energy investment
- Teak investment
- Timber investment
An alternative to forestry investment might be found in the field of green investments which includes trading in emissions or carbon, solar and renewable energies.