1

World Forestry Update: South America

World Forestry Update

Prepared by Greenwood Management ApS. Issue 1

10.905.327/0001-66 Ltda.

Greenwood Agropecuaria

info@greenwood-management.com

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CONTENTS

TABLE OF CONTENTS ...............................................................................................................................................1/2/3

1.0 SOUTH AMERICA OVERVIEW ........................................................................................................................ 4/5/6

2.0 BRAZIL COUNTRY OVERVIEW ....................................................................................................................... 7

I OVERVIEW ........................................................................................................................................................ 7

II FOREST PRODUCT INDUSTRY.......................................................................................................................... 8

III BRAZIL POPULATION DATA............................................................................................................................... 9

IV BRAZIL GEOGRAGHY DATA .............................................................................................................................10

V BRAZIL GOVERNMENT AND COUNTRY DATA ..................................................................................................11

VI BRAZIL ECONOMIC DATA ..................................................................................................................................12

VII BRAZIL ECONOMIC OVERVIEW ........................................................................................................................12

VIII BRAZIL ECONOMIC INDICATORS TABLE...........................................................................................................13

IX BRAZIL ECONOMIC INDICATORS TABLE

.13/14

X BRAZIL PRIMARY CROPS ................................................................................................................................15

XI INTRODUCTION/ OVERVIEW ..........................................................................................................................15

XII ANALYSIS AND INTERPRETATION OF DATA ................................................................................................16

XIII BRAZIL EUCALYPTUS PRIMARY SPECIES....................................................................................................16.

XIV INTRODUCTION..............................................................................................................................................16

XV PRIMARY MARKETS ......................................................................................................................................

16/17/18

XVI SECONDARY MARKET ......................................................................................................................................19

XVII OTHER PLANTATION SPECIES ..........................................................................................................................20

XVIII INTRODUCTION ...............................................................................................................................................21

XIX PRIMARY INDUSTRIES

.22/23

3.0 CHILE..................................................................................................................................................................24

I COUNTRY OVERVIEW ........................................................................................................................................24

II GEOGRAPHY DATA...........................................................................................................................................26

III GOVERNMENTAL AND COUNTRY....................................................................................................................27

IV POPULATION DATA ..........................................................................................................................................28

V FOREST PRODUCTS INDUSTRY .....................................................................................................................29

VI ECONOMIC DATA TABLE.................................................................................................................................29

VII ECONOMIC INDICATORS.

.29/30/31

VIII PRIMARY AGRO FORESTRY SPECIES ..........................................................................................................32

IX INTRODUCTION ...............................................................................................................................................33

X OVERVIEW .......................................................................................................................................................34

XI PRIMARY MARKETS ........................................................................................................................................35

XII PRIMARY EXPORT MARKETS.........................................................................................................................36

XIII ANALYSIS AND INTERPRETATION OF COLLECTED DATA..........................................................................

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CONTENTS 4.0 URUGUAY ........................................................................................................................................................38

I COUNTRY OVERVIEW.....................................................................................................................................38

II FOREST PRODUCT INDUSTRY .....................................................................................................................38

III GEOGRAPHY DATA........................................................................................................................................39

IV POPULATION DATA ........................................................................................................................................41

V GOVERNMENT AND COUNTRY DATA ...........................................................................................................42

VI ECONOMIC DATA.............................................................................................................................................43

VII ECONOMIC INDICATORS

.44/45/46

5.0 PARAGUAY......................................................................................................................................................47

I COUNTRY OVERVIEW ....................................................................................................................................48

II ECONOMIC DATA ...........................................................................................................................................48

III ECONOMIC OVERVIEW..................................................................................................................................48

IV POPULATION DATA .......................................................................................................................................49

V GOVERNMENT AND COUNTRY DATA ...........................................................................................................50

VI ECONOMIC INDICATORS.

.51/52/53/54

VII DEVELOPMENT OF F0REST PLANTATIONS ...............................................................................................55

VIII SPECIES .........................................................................................................................................................56

INDUSTRY NEWS ....................................................................................................................................................... 56

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1.0 South America An Overview

South America has an area of 17,840,000 square km representative of almost 3.5% of the surface of the earth. In

2005 its population was estimated to be 371,090,000. South America ranks 4th

in total area after Asia, Africa, and

North America as well as fifth globally in population after Asia, Africa, Europe, and North America.

South America’s agricultural industry is growing, new techniques have been developed to turn land once viewed as unusable and degraded into some of the worlds most productive areas. The primary country in South America for much of the agricultural operations is Brazil.

Tropical South American forestry

The tropical South American regions comprising of Brazil, Paraguay, Bolivia, Peru, Columbia, French

Guiana, Suriname, Guyana, Venezuela, and Ecuador consists of the largest concentration of tropical

rainforest globally.

It is understood that there is approximately 970 million hectares of rainforest located in the area on a

total land mass of 1387 million hectares, the forest types in the region vary dramatically from arid and

semi-arid comprising around 36% of the total area, tropical moist deciduous forest representing 24%,

tropical mountain forest representing 10% and tropical dry forest at 9.5%. There is now an international

Amazon forestry fund initiated by Brazil to protect the area, and management programs have been

allowed in some areas in order to stamp out illegal logging.

South American agro-forestry

Agro-forestry is the practice of growing trees as a crop and has been utilized by farmers for centuries.

South America not only produces much of the worlds fruit and a large amount of global soft commodities

but also produces a large amount of timber. In South America the agro-forestry plantations are

dominated by fast growing Pines, and Eucalypts, however other species such as Poplar, Acacia, and willow

are also planted

New data from the World Agroforestry Centre suggests that nearly half of the worlds farmlands have at

least 10% tree cover the study also found that in South America there is approximately 3.2 million

squared kilometers

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Table 1: Shows the areas currently afforested and managed in the tropical areas of South America

Tropical South American Forestry Country / Area Land Natural

Agro-Forestry

Forest Cover Above Ground

Forestry Currently

ha Forest ha Plantations

ha Total ha Biomass Volume m3

/ha Under

Management

Bolivia 108 438 000 53 022 000 46 000 53 068 000 114 6 900 000

Brazil 845 651 000 538 924 000 4 982 000

543 905 000 131 4 000 000

Colombia 103 871 000 49 460 000 141 000 49 601 000 108 85 000

Ecuador 27 684 000 10 390 000 167 000 10 557 000 121 14 000 French Guiana 8 815 000 7 925 000 1 000 7 926 000 145 400 000

Guyana 21 498 000 16 867 000 12 000 16 879 000 145 4 200 000

Paraguay 39 730 000 23 345 000 27 000 23 372 000 34 3 000 000

Peru 128 000 000 64 575 000 640 000 65 215 000 158 1 573 000

Suriname 15 600 000 14 100 000 13 000 14 113 000 145 1 568 000

Venezuela 88 206 000 48 643 000 863 000 49 506 000 134 3 970 000

Total

Tropical 1 387 493

000 827 252 000 6 890 000

834 142 000 129

South America

Total South

1 754 741 000

875 163 000 10 455 000

885 618 000 125

America

Total 13 063 900

000 3 682 722

000 186 733 000 3 869 455

000 100

Global

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Although there are a number of countries located in South America this report focuses primarily on the top 3 countries for investment Brazil, Chile and Uruguay.

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2.0 BRAZIL –Country Overview Overview Brazil gained independence from the Portuguese in 1822 and maintained a monarchical system of government until slavery was abolished in 188. This was followed by a military republic system in 1889. The Brazilian coffee exporters held political control over the country until the populist leader Getulio Vargas rose to power in 1930. Brazil is the largest and most populous country in South America and has endured more than 50 years of populist and military government until 1985 when the then military rule peacefully relinquished power to civilian rulers. Brazil as a nation is in physical terms, the size of a continent.

2.2 The Forest Products Industry

In the Mercosur countries, forest plantations have won international attention from investors due to high

forest productivity (MAI). This, coupled with competitive production costs, provides strong advantages to

produce unrivalled returns in comparison to some other countries. Brazil is the world’s fifth-largest

industrial wood producer, the largest producer of tropical wood and produces 280 million cubic meters of

wood per year. Brazil produces significant quantities of both hardwoods and softwoods with almost a

third of Brazil’s planted wood production being used to produce sawn timber, and a large quantity of the

remainder being used to produce pulp and paper. Brazil’s wood panels sector is also significant on a

global scale. Brazil consumes a relatively high proportion of its wood production but is still one of the

world’s ten largest forest products exporters and is one of the three largest producers and consumers of

wood for fuel. A recent study by the IDB (Inter-American Development Bank) ranked Brazil as the most

attractive of the Latin American countries for foreign investment.

Production (m3) Leading State (% of market segment)

Natural Forests

Charcoal (1) 38,734,000 Pará(35%), Maranhão(21%)

Firewood 47,232,000 Bahia(26.6%), Ceará(9.3%)

Logs 20,663,000 Pará(52%)

Planted Forests

Charcoal (1) 39,468,000 Minas Gerais(74.5%)

Firewood 33,903,000 Rio Grande do Sul(32.5%)

Paper & Cellulose 49,531,000 Sao Paulo(26.6%)

Lumber 50,166,000 Sao Paulo(26.6%)

Total 279,697,000

Table 1: Brazilian Annual Wood Production, Segmented

Source: IBGE, Diretoria de Pesquisas, Coordenação de Agropecuária, Produção da Extração Vegetal e da

Silvicultura 2002 e 2003 (2003 figures shown) figures are Estimated equivalent m3 of wood.

Figure 1: Above shows how the Brazilian wood products market is divided

All Northern States

All Southern States

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2.0 BRAZIL - Country Overview (continued) 2.2 The Forest Products Industry (continued) The Brazilian Amazon occupies almost 60% of the country as a whole. Approximately 85% of timber production from natural forests comes from the Amazon. In 2005 it was estimated that over 3,000 logging companies were in operation. Exports from the area are just under US$1 billion with around 30% of the total exports going to EU member states. The legal timber extracted from the area is produced from either managed forestry areas or authorized land clearance, although illegal timber extraction is of still a concern and the total consumed by the forestry and forest products industry could have as much as 80% volume unauthorized. There have been a number of re-forms in the industry and in 2008 the Brazilian President Luiz Inacio Lula da Silva signed a decree creating the Amazon Fund. The fund, an international forestry fund, has been designed to receive up to 21 billion dollars in contributions over the next thirteen years. The donations to the fund are administered by the National Economic and Social Development Banks (BNDES) and the fund will also be monitored by the BNDES. The funds primary motive will be to finance conservation and sustainable development programs in the Amazon area. The fund represents Brazil’s stance and its intention to conserve the natural resources of the Amazon, despite the criticism from some environment groups that not enough is being done to support the area. Additionally up to 20% of funds can go to preserving Brazilian ecosystems outside the area and is also directed to other tropical areas of environmental importance. Other legislative reform such as the law on Public Forest Management in 2006, has opened legal timber production on public forest land under a concessionary system. This is important as this is also the first time that this has been allowed. It is noted that as much as 45% of the Amazon could be held under this tenure and there is now an opportunity to regularise a substantial quantity for timber that would previously have been illegal. The creation of a federal forest service and forestry fund for development of managed initiatives will also allow more control. This leaves the Amazon less dependant on the political priorities that have been previously attached to environmental management, which has been the primary reason for unmanaged, unsustainable illegal logging in the area. Other structural designs introduced under this law require 3 yearly audits on concessions given on public forests. National efforts to address the problems of illegality in forestry are being co-ordinated by intra-governmental

departments such as the Ministry for Justice, and Defence and Strategy. Directed via the National Forest Programme,

these combined efforts will be vital in reforming the industry. Advances in technology via bar-coding, on-line data

bases and better tracking systems will also bring new opportunities to address these problems. Despite these

advances in illegality, there still remain the ongoing difficulties of land tenure reform. Under-resourcing in

government administration departments for land title/tenure allocation is still a significant problem for Brazils

forestry industry.

The chain of responsibility regarding regulation from the upper levels of the Federal Government also presents a

significant challenge to evolve workable solutions. Considerable over-lapping exists within the decision making chain

and the regulatory areas of responsibility often become quite indistinct. Poor forestry management in some states

also provides obstacles to proper forestry practices, particularly with respect to the chain of custody and systematic

control procedures. The existing procedure within the legal profession is restricted by under-resourcing and a

programme of targeted funding for expansion of the judicial sector would alleviate the situation considerably. Extra

funding via re-forestation credits is offered to wood producers as an incentive to maintain supplies to Brazil’s end

users of timber products.

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BRAZIL - Economic Data 2.2 Overview Since 1985, Brazil has continued to pursue agricultural and industrial growth and the development of its interior. Its position has been cemented through exploiting its natural resources and large labour pool and is today the leading economic power and regional leader in South America. Brazil is also one of the four primary emerging markets projected by analysts to become one of the wealthiest economies by 2050, collectively termed the “BRIC” economies. These countries consist of Brazil, Russia, India, and China. On April the 30

th 2008 Standard & Poor’s became the first rating agency to classify Brazil as “investment

grade” this move sparked a 6.3% rise in the BOVESPA index. Literacy is relatively high, supplying an abundant able workforce, with 88.4% of males and 88.8% of females over the age of 15 able to read and write. Brazil is also the 6

th most populous country in the world

and has 198,739,269 residents. There are a number of other market participants that may support future sustainable investments into Brazil, as an example, the Brazilian Development Bank (BNDES) has stakes in over 30 publicly listed Brazilian companies and holds a portfolio of approximately $16 billion US dollars. The wealth management market is important and there are currently 143,000 high net worth individuals, creating a market of approximately $1.4 trillion US with approximately 16% of Latin American high net worth individuals allocating some part of their portfolio’s into sustainable “green investments” such as alternative energy. The investment environment in Brazil in relation to the sustainable investments sector is relatively strong in comparison to its emerging BRIC economy counterparts,.Brazil is particularly strong in its voluntary “non-financial” reporting by companies. Approximately 60% of companies in the BOVESPA publish reports detailing sustainability, many of which are based on the international good practice guidelines issued by the Global Reporting Initiative (GRI). The annual survey for the International Carbon Disclosure Project (CDP) is also progressing. Based on the IMF’s 2008 estimates of worldwide GDP, Brazil is today the worlds 9

th largest economy. Economic growth in Brazil increased from 3.8% in 2006 and

exceeded the 2007 expectations at 5.4%. In 2008 this trend continued for the first several months with the GDP growing at 6.1% however as the shockwaves of the global financial crisis rippled across the globe the growth of the GDP also slowed as such the growth prospects for 2009 are low from the projected 5.1% in 2008 to 0.5% in 2009. In response to the financial crisis the Brazilian government has expanded its social security net and has

developed its strategic investment initiatives by creating jobs in the infrastructure sector whilst also

progressing its social housing strategy. Through 30 years, the development of the rural poverty reduction

projects have developed with 53% of low income rural populations now receiving resources directed

through their communities. These resources allow the community to choose how to invest them and

implement projects directly. The result is that these community projects are 50% less expensive to

implement.

In addition, the land loans (Credito Fundiario) project offers financing and donations to communities to

identify and purchase land for farming. This has led to the average income of families settled by the

program increasing by 181% between 1998-2003, and 145% between 2003-2005. Agricultural production

as a result has also increased by around 350% between 1998-2000 and by 100% between 2000-2003. As a

result of these and other initiatives before the crisis, Brazilians have been benefiting for the first time in a

generation from stable economic growth coupled with low inflation rates and large improvements in

social well-being. The development of the Brazilian market in these recent years is primarily down to

sustained strong commodity prices, allowing the economy to grow at an average of 4.8% between 2004

to 2008 above the average growth rate of previous decades of just below 2.5%.

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ECONOMIC INDICATORS

GDP (purchasing power parity) GDP (real growth rate)

2006 (est) 2006 (est)

$1.794 trillion 4%

2007 (est) 2007 (est)

$1.896 trillion 5.70%

2008 (est) 2008 (est)

$1.993 trillion 5.10%

GDP (per capita PPP) GDP (sectoral composition)

2006 (est) AGRICULTURE

$9,400 6.70%

2007 (est) INDUSTRY

$9,800 28%

2008 (est) SERVICES

$10,200 65.30%

LABOUR FORCE (sectoral composition) LABOUR FORCE AGRICULTURE TOTAL (2008 est)

20% 93.65 million

INDUSTRY UNEMPLOYMENT RATE (2007 est)

14% 9.30%

SERVICES UNEMPLOYMENT RATE (2008 est)

66% (2003 est.) 7.90%

POPULATION BELOW POVERTY LINE (2005)

FAMILY INCOME DISTRIBUTION (Gini index) 31%

56.7 (2005)

60.7 (1998) INFLATION RATE (consumer index)

2007 est

INVESTMENT (gross fixed) 3.60%

19% of GDP 2008 est

BUDGET REVENUES (2008 est) 5.70%

NA

BUDGET EXPENDITURES (2008 est) CENTRAL BANK DISCOUNT RATE NA 20.48% (31 December 2008)

17.85% (31 December 2007)

PUBLIC DEBT

11

2004 est (of GDP)

COMERCIAL BANK (prime lending rate)

52%

2008 est (of GDP) 31st Dec 2007

36.90% 43.72%

31st Dec 2008

STOCK OF QUASI MONEY N/A

31st Dec 2007

$792.8 billion STOCK OF MONEY 31st Dec 2008 31st Dec 2007

N/A $131.1 billion

31st Dec 2008

STOCK OF DOMESTIC CREDIT $NA (31 December 2008)

31st Dec 2007

$1.377 trillion

MARKET VALUE OF PUBLICLY TRADED SHARES

31st Dec 2008 31st Dec 2008

N/A $589.4 billion

31st Dec 2007

PRODUCTS $1.37 trillion

AGRICULTURE 31st Dec 2006

coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef $711.1 billion

INDUSTRY

textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, ELECTRICITY aircraft, motor vehicles and parts, other machinery and

equipment ELECTRICITY (production)

INDUSTRIAL PRODUCTION GROWTH RATE 437.3 billion kWh (2007 est.)

4.30% ELECTRICITY (consumption)

402.2 billion kWh (2007 est.)

CURRENT ACCOUNT BALANCE ELECTRICITY (exports)

2007 est 2.034 billion kWh (2007 est.)

$1.551 billion ELECTRICITY (imports)

2008 est 40.47 billion kWh; note - supplied by Paraguay (2007 est.)

$-28.19 billion

OIL

EXPORTS OIL (production)

2007 est 2.277 million bbl/day (2007 est.)

$160.6 billion OIL (consumption)

2008 est 2.372 million bbl/day (2007 est.)

$197.9 billion OIL (exports)

EXPORT PARTNERS (2008) 481,100 bbl/day (2005)

Germany 4.5% OIL (imports)

Netherlands 4.9% 648,800 bbl/day (2005)

Argentina 8.6%

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China 11.5% NATURAL GAS

US 14.6% NATURAL GAS (production)

EXPORT COMMODITIES 9.8 billion cu m (2007est )

transport equipment, iron ore, soybeans, timber, footwear, coffee, autos NATURAL GAS (consumption)

19.8 billion cu m (2007 est.)

IMPORTS NATURAL GAS (exports)

2007 est 0 cu m (2007 est.)

$120.6 billion NATURAL GAS (imports)

2008 est 10 billion cu m (2007 est.)

$173.1 billion

IMPORT PARTNERS (2008) RESERVES FX AND GOLD Germany 7% 31st Dec 2007

Argentina 7.9% $180.3 billion

China 11.6% 31st Dec 2008

US 14.9% $193.8 billion

IMPORT COMMODITIES

machinery, electrical and transport equipment,

chemical products, oil, automotive parts, electronics EXTERNAL DEBT

31st Dec 2007

STOCK OF FOREIGN INVESTMENT (in house) $240.5 billion

31st Dec 2007 31st Dec 2008

$248.9 billion $262.9 billion

31st Dec 2008

$294 billion EXCHANGE RATES Reals (BRL) per US dollar

STOCK OF FOREIGN INVESTMENT (abroad) 2006

31st Dec 2007 2.434

$107.1 billion 2007

31st Dec 2007 1.85

$127.5 billion 2008

1.864

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BRAZIL - Economic Data (Continued)

Brazil has the largest economy of all the Latin American nations and continues to expand its global

presence. The diversity within its economy has been pivotal in its success. Ranging from a strong

agricultural sector to flourishing mining and commodity markets, there has been a wide depth of

industrial growth. Brazil has also recently discovered significant off shore oil reserves. Recognized from an

international standpoint for prudent fiscal management, the Brazilian government has presided over

current account surpluses in recent years. President Lula da Silva re stated his commitment to fiscal

responsibility following the 2006 elections and promised further economic reforms involving

infrastructural investment and tax reductions. As a percentage of its GDP, Brazils exports are relatively

modest in comparison to many of the worlds largest economies. Approximately 13% of GDP for Brazil,

compared to almost 40% for Japan and Germany. The institutional community, Standard and Poor and

Fitch have assigned investment grade status to Brazils sovereign debt. Brazil commenced a tightening of

monetary policy during 2008 due to inflationary pressures. In line with most major market indices, the

Bovespa, Brazils stock exchange dropped 40% during the global financial crisis. In 2008, Brazil incurred a

current account deficit as global commodity demand fell. Brazil has recently emerged from recession

following recently reported growth figures. The first South American Country to come out of recession.

BRAZIL – Primary crops

Introduction

Although a large proportion of timber is extracted from natural forests in the north, Eucalypt and Pine are still the

predominant agro-forestry (forestry plantation crops) species in the South of Brazil. Due to their fast growth they have

been heavily used as a substitute for natural forest products in the majority of Brazil’s primary industries.

Consequently, this section of the report focuses on these two primary plantation species.

Overview:

In 2008 the Brazilian Association of Forest Plantation Producers reported an estimated 6,126,000 hectares of planted

Eucalypt and Pine forest. This represented an increase on the previous year of approximately 282,000 hectares. The total

area designated for Eucalypt increased by 7.3%, whilst the area designated for pine dropped by 0.4%,. This has resulted

in a total increase of 4.8% in the total planted area for both species combined in 2008 compared to 2007. The total area

for Eucalypt grew to 4,258,704 hectares with 29% of this area in Minas Gerais, 22% Sao Paulo and 14% in Bahia. The total

area currently for Pine is 1,867,680 hectares, of which 38% is situated in Paraná, 30% in Santa Catarina and 9% in Rio

Grande do Sul. The average annual growth trend for Eucalypt plantations is currently +6.7% whilst the growth trend from

2004 to 2008 was +29.5%,. The average annual growth trend for Pine is -1.5% whilst the growth trend between 2004 to

2008 was -5.7%.

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BRAZIL – Primary crops (Continued)

3.3 Analysis and Interpretation of collected data

From the figures collected by ABRAF we can ascertain that 77% of all pine planted in Brazil is concentrated in the

southern region, whilst the southeast region comprises 57% of all Eucalypt planted in Brazil. The state of Minas Gerais

(currently containing 10 out of the 27 “pig iron” producers) represented the largest area for both Eucalypt and Pine

combined.

The total planted area (Eucalypt and Pine) held by ABRAF members increased by 9.8% in 2008 compared to 2007.

Determined by ABRAF members, end users for Eucalypt and Pine have developed into the largest industry end users,

with the pulp and paper industry utilizing 76% of Pine and 70% of Eucalypt.. The industrial end users for reconstituted

panels and the iron and steel industry utilize 15% of Pine and 9% of Eucalypt, however in the case of ABRAF member

growers, 21% of the Eucalypt planted area is designated for the iron and steel industry, whilst only 6% is utilized for

reconstituted panels.

BRAZIL - Eucalyptus (primary species)

Introduction

Australian eucalypts have been among the most widely used and successful plantation trees. There are

over 700 different species of Eucalypts, the majority of Australian origin, with only 15 other species

naturally occurring outside of Australia and only 9 that do not occur in Australia. Out of these species, a

total number of 500 have the potential for industrial plantations, however in Brazil the primary species of

Eucalyptus used is E. grandis grown on 5-10 year coppice rotations. Other predominant species are also

favored: these are E. urophyll, E. saligna and more recently, strains of E.grandis and E.urophyll have

evolved. Certain species will of course grow at faster rates than other species but Brazil still sustains world

record growth rates for Eucalypt. This is primarily to do with a high levels of research into Eucalypt

producing developments in breeding and silviculture that has increased growth rates reported by ABRAF

members from 36.7 m3/ha/yr in 2005 to 40.5 m3/ha/yr in 2007. and Growth rates of over 60m3/ha/yr

are commonly observed and in some exceptional cases, growth rates of over 100 m3/ha/yr have been

reported.

Primary Markets

Firewood

The firewood is used primarily as a source of energy for the generation of steam and comes from the

native woods found in the “cerrado”. Assuming the cerrado land being cleared in Bahia has an average

density of 50 m3 of wood per hectare, 250,000 hectares of land must be cleared per year to maintain the

current level of production, which is clearly an unsustainable figure now that the choice farmland has

been cleared.

15

BRAZIL - Eucalyptus (primary species) (Continued)

In Western Bahia, companies such as Cargill and Bunge use the wood in their local soybean crushing

facilities. Fertilizer manufacturing and meat processing facilities such as Bunge, Galvani and Fribarreiras

are also large users. Currently, those companies are using R$60 per m3 in their forecasts for planning

purposes.

A majority of these companies have seen their supply of energy in jeopardy and have taken the initiative

to plant their own areas of eucalyptus. Since 1992, for example, Bunge has planted eucalyptus for its own

use. Both Bunge and Cargill attempted to stimulate production by offering financing programs and

guaranteed sales, but have achieved little success to date. The lack of professional producers and

systemized production methods inhibited satisfactory yields.

Another large demand factor for firewood is the drying of soybeans. In any given year, the consumption

of firewood depends on the humidity of the soybeans to be dried and the overall production. Drying

facilities are not consolidated, nor do they typically produce their own energy needs. The growth of this

market is directly related to the overall growth in production of soybeans.

Charcoal

Traditionally, steel companies have used charcoal as their main fuel and carbon source and today, 30% of

the 29.9 million tons of steel produced utilizes charcoal to fuel the process. Charcoal can come from

either native vegetation or reforested vegetation, and is achieved by a process called carbonization. The

charcoal is produced onsite and typically charcoal from eucalyptus earns a premium to native wood due

to its higher caloric value.

The charts below indicate the total output and consumption of Brazilian charcoal by region.

Fig 3: Shows currently Mato Grosso Sul (MS) produces 23% of the total charcoal whilst Minas Gerais (MG)

produces 20% of Brazilian charcoal

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BRAZIL - Eucalyptus (primary species)

Fig 5: Shows Minas Gerais (MG) is by far the largest charcoal consumer using 66.14% of the total

production

Cellulose

The majority of the Eucalyptus production in the State of Bahia is directed towards cellulose production.

Cellulose production accounts for nearly 45% of the State's gross intern product. Both the northern and

southern coasts of Bahia is where the vast majority of reforestation exists in the State. Some of the largest

pulp mills in the world including Veracel, Aracruz and Bahia Sul are located in this region While cellulose is

the largest use for eucalyptus production in Bahia, it is unlikely in the immediate future that cellulose

processing will move into the western half of the state. It is feasible however that transport of feedstock

from the other regions to the existing mills can occur. Both the northern and southern coasts are

experiencing regulatory pressure and high land prices, impeding the inability to expand production in

these traditional areas.

Roundwood

In 2007, the roundwood consumption by ABRAF member companies was 54,3 million cubic metres,

representing a 10.6% increase in relation to the previous year. Eucalypt roundwood consumption has

steadily risen over the last few years with an increase of almost 12 percent in 2007. The end users of

roundwood are mostly large-scale companies, particularly those related to pulp and paper industry and

reconstituted panel production, which use modern technologies for forest activities and industrial

processing plants.The smaller and medium sized end users would typically use roundwood for sawnwood,

plywood and furniture production. Most of the small-sized companies are family-run, with low level of

mechanisation and low level technology. Bearing in mind that the Brazilian export trade market in

roundwood from planted forests is relatively small. Brazil’s total production is roughly equivalent to its

domestic consumption. In 2007, the total roundwood consumption from forest plantations was

approximately 155.7 million cubic metres, represented by 32% pine and 68 % eucalypt. The pulp and

paper industry is the main user, consuming 30.5% of the total production, iron ore and steel industry

24.0%, sawnwood 18.6%, and plywood and reconstituted panel 5.1%

17

BRAZIL – Eucalyptus (primary species)

Secondary Markets

The substitution of reconstituted wood products like plywood for solid wood products has been an

ongoing change in the non-structural wood sector. Costs, both of the raw product and processing are

significantly less compared to traditional wood products. As native forests have diminished and

environmental regulations against the harvesting of natural forests have increased, Brazilian

manufacturers have moved into plywood and particleboard production.

Pressure Treated Lumber

Fenced posts throughout the southern region are either made of concrete or are cut from native trees

and are often used with the bark still intact. Utility poles are also made exclusively from concrete. By

pressure treating posts or poles with cremated copper arsenate (CCA), plantation wood can be placed in

the ground for up to 20 years and the cost of a pressure treated post is far less than concrete. Auto-clave

facilities to pressure treat exist ing Southern Brazil and the product has been accepted domestically and is

being successfully exported.

Furniture

Furniture exports from Brazil recently exceeded US$1 billion annually. Eucalyptus is used to produce

various types of garden furniture including chairs, tables, benches, cabinets, stands, and dressers. While

exports of furniture have been threatened by a stronger local currency, growth has been sustained.

Exports for Brazilian furniture production are destined mostly to the United States, but also to France and

Argentina. In addition to furniture, Brazilian eucalyptus is also exported for flooring, molding and joinery.

Although Eucalyptus is the predominant species in Brazil, Loblolly pine also plays a role and is an

important species in many countries, including Brazil where 1 million hectares of plantations have been

established from latitudes 20° - 32°S in the states of Matto Grosso do Sul, Sao Paulo, Parana, Santa

Catarina, and Rio Grande do Sul In southern Brazil, Mean Annual growth is around 25 m3/ha/yr with

rotation ages from 20-25 years. Much of the rapid growth rates of loblolly in Brazil can perhaps be

attributed to the relatively mild climate of southern Brazil

18

BRAZIL - Other Plantation Species

Introduction:

Eucalypt and Pine are the predominant species planted in Brazil however several other species are

noticeably worth looking at. These are -

• Wattle (Acacia Mangium & Acacia Mearnsii). An important multipurpose agro-forestry

species.

• Rubber Tree (Hevea Braziliensis). Primarily in the Amazon regions.

• Parica (Schizolobium amazonicum). Primarily utilized for veneer, toothpicks and plywood.

• Teak (Tectona grandis) Primarily located in Mato Grosso, Amazonas, and Acre. One of the

best known high value species.

• Araucaria (Araucaria angustifolia) The main uses are sawnwood and vaneer, solid wood,

mouldings, furniture and long fibre pulp.

• Poplar (Poplar spp) This species is primarily used in manufacturing matches, furniture,

doors, interior woodwork.

• Guanandi (Calophyllum brasiliense)

Acacia

Acacia is notably one of the most important multi-purpose agro-forestry species in the world. There are a

large number of uses for this species, notably including honey making, cattle fodder (retaining approximately

61% protein in leaf content), high value timber (can be produced within 10 to 12 years) pulp and paper,

fuelwood and charcoal, and most notably tannins. Acacia holds one of the highest tannin contents in its bark

and is heavily utilized by the leather industry. It should also be noted that the only industrial exporters of

tannins are Brazil, South Africa, Chile and China. This species has both strong domestic as well as

international acceptance and the areas planted are primarily concentrated in Rio Grande do Sul and

Roraima.

19

BRAZIL - Other Plantation Species (Continued)

Rubber Tree

Native to Brazil and originally found in the Brazilian Amazon, this species is tapped to produce rubber. The

species has also been grown in other states that have the right climate and abundant water supplies to

support large scale agri-business ventures. The states that offer the best geographical locations are widely

seen as Bahia, Minas Gerais, Sao Paulo, Mato Grosso, and Mato Grosso do Sul. There is an ongoing Brazilian

strategy to avoid total dependence on imported rubber by producing domestic rubber in plantations.

Additional to this, research has begun and clones have been developed to produce pest-resistant strains to

combat the threat of native pests which have in the past been a concern of producing rubber in Brazil.

Parica

The plantation areas predominantly used for this species are situated in Para and Maranhao. Another native

Brazilian species, the timber is suitable for veneer and plywood, moldings, ceilings, toothpicks and furniture.

Araucaria

Parana/Araucaria (Araucaria angustifolia) forest plantations are sited mainly in the southern states of Paraná and Santa Catarina. The timber is predominantly used for sawnwood and veneer, solid wood products, such as ceilings and mouldings, and furniture,. Despite its importance for certain regions, araucaria planted area in Brazil diminished over recent years, mainly as a result of it’s substitution by faster growing species and laws restricting araucaria logging (including natural and planted forest). The Administrative Ordinance now lists araucaria as a threatened native species and it is now is subject to legal restrictions on its harvesting, for any purposes, which can only be via a through a permit obtained from the competent environmental agency. Poplar (Populus spp) forest plantations are also concentrated in Parana and Santa Catarina. This is a minor planted species, generally used in manufacturing of matches, furniture parts, doors, interior woodwork, and others. Poplar

Poplar forest plantations are concentrated in Parana and Santa Catarina. This is a minor planted species, generally used in manufacturing of matches, furniture parts, doors, interior woodwork, and others. Teak Plantations for teak are mostly located in Amazona, Acre and Mato Grosso, Teak is considered to be one of the moshighly valued timbers in the timber market, a clear reason for its expansion in plantation areas over recent years. Primary uses are for construction (doors, window frames, panels, ceilings etc.), flooring and decks, furniture, shipbuilding, decorative veneer, decoration, sculpture and woodcarving. Teak was originally planted between 25-30 years ago in Brazil. Most plantations are still at a young age. The teak plantations are managed by a handful of major forestry companies. Few of them have mature forests producing high-value timber products for export. The remaining companies are about to start managing their young plantations and will likely be producing small-diameter logs (fuelwood/residues) for domestic markets.

20

BRAZIL – Primary industries

The Iron and Steel Industry

The Brazilian Iron and Steel Industry is an important market driver for forestry products.

Charcoal extracted from natural forests was paramount to the development of this Brazilian industry. A

number of restrictions have been put in place over the years in order to stop charcoal extracted from native

forests being used. These changes have led to the development of laws to ensure “re-forestation is relative

to consumption” and as such has driven demand for plantation-grown charcoal that has been approved as

sustainable by the regional governments.

It is forecast that total Brazilian steel production capacity will increase from 33 to 57 million tons in the next

ten years due to the heavy investment programmes undertaken in recent years and ongoing projects.

Investments totaling apporoximately R$32billion in the 3 years from 2008 to 2011 are predicted by The

National Development Bank. Pig-Iron production based on charcoal stayed unchanged over the last 3 years.

The region of Minas Gerais, a central hub for production of pig iron has reduced output. Following difficulties

in sourcing charcoal, many of the charcoal kilns have been out of use, with a reported 50% standing idle in

2007. Several companies with sourcing difficulties have turned to the neighbouring state of Bahia for

supplies of charcoal produced from the Eucalyptus plantations. Nearly one third of pig- iron production in

Brazil (32.5 million tons recorded in 2006) uses charcoal in the smelting process. The charcoal is produced

equally between by the forestry plantations and from natural forests.

A groundswell of opinion led by environmentalists is generating pressure against natural forest usage for

iron smelting. As a result, there are significant numbers of private and public sector enterprises targeting the

charcoal production market from forest plantations. Of particular note, the state of Minas Gerais, in a

public-private enterprise, plans to find new outlets to boost financing for plantation investing, with an

planned increase of 0.6 million hectares in 8 years., resulting in a total of 1.8 million hectares being

anticipated to be in production at the end of the period. This is widely viewed as a part answer to the threat

which faces the natural forest together with a workable solution to addressing the problems of charcoal

scarcity. Under the supervision of The Secretary of State for agriculture a body known as the “Sectoral

Chamber for Silviculture” has been formed to address the situation

21

BRAZIL – Primary industries (Continued)

Coal/Coke

Linked to steel and iron production, coking coal has undergone significant price rises between 200 and

2005 due to demand pull influences. The figure below show a small decline in imported coal prices in

2007. Coal prices are not available on stock markets but rather are determined in negotiations between

specific countries/companies. Prices in spot markets have risen twofold with further rises anticipated in

future.

China has increased its domestic demand for coal and has now become a net importer of coal despite

being a significant producer itself. As a result of increased oil prices many countries have turned towards

coal as a substitute energy source. Investment in coking-coal fired power plants are rising. The

combination of these factors together with coal based steel production have further pushed prices of

coal.

6.3 National Steel production

Large scale steel and Iron plants in Brazil will be based on coke as a thermal redactor once the future

supply line of charcoal from forest plantations is unable to meet anticipated demand. As a result of

growing environmental restrictions, combined with a chronic shortage of charcoal from managed forestry

plantations some independent producers in the Carajas cluster are substituting some of the charcoal for

Venezuelan imported Coking coal. Importation in 2007 was assisted by the strengthening of the Brazilian

Real in relation to the US dollar. However, coal price rises are likely to change the small to medium sized

22

BRAZIL – Primary industries (Continued)

pig iron and steel manufacturers, in the medium to long term and as a consequence opportunities will

exist for these mills to benefit from carbon credits. The consumption of charcoal from planted forest is

forecast to rise, providing a likely stimulus toward new financing incentives and driving advancement in

new technologies.

Years 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Pig Iron

Production/Integrat

ed Mills using

charcoal (millions

tons)

1,67

1,42

1,47

1,41

1,25

1,30

1,29

1,35

1,45

1,65

Pig

Iron/Independent

mills using charcoal

(millions tons)

4,36

4,76

4,96

5,40

6,15

6,51

6,76

8,10

10,09

9,77

Charcoal consumed

by Integrated Mills

(millions cubic

meters)

5,20

4,50

4,40

4,20

3,75

3,90

3,68

3,38

3,98

4,63

Charcoal consumed

by Independent

Mills (millions cubic

meters)

13,00

14,30

17,80

18,30

16,40

17,58

18,03

20,22

27,59

27,82

Charcoal consumption and pig iron production in Brazil (1996 – 2005).

Pulp and Paper:

The Brazilian paper and pulp industry is a predominant market in Brazil with pulp and cellulose being

produced from both Eucalyptus and Pine plantations. This market represents the largest market for forest

products.

Brazil has increased pulp production by approximately 8% in 2008 whilst the wood fiber costs remained

unchanged in the local currency by the 2nd

quarter of 2009, however prices had increased by approximately

8%. In August, indications are that the Brazilian pulp industry is recovering from the weak global demand for

paper and pulp. In April pulp exports equated to 766,000 tons, this was an increase of 43% from the previous

month and 140% increase on the previous year’s shipments.

Brazilian pulp companies benefited from some closures of pulpmills as a result of reduced production

capacity in the Northern Hemisphere and an increase in demand for pulp in China. In the first quarter of

2009, shipments to China were 68 percent higher than the same quarter in 2008. This year, China increased

its imports from Brazil for two main reasons, Firstly, a number of small domestic mills closed in China and

secondly there was a reduction in imports from Indonesian pulpmills, which have experienced wood fibre

23

We hope that you have enjoyed this 22 page sample of the “World Forestry Update”

This forestry “market brief” is a Greenwood Management

ApS publication designed to help both forestry investors as well as professionals.

You can access the full 56 page report by going to –

www.greenwood-management.com

Or alternatively you can email – j.randall@greenwood-management.com

24

Greenwood Management ApS

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