Timberland Investments in the Americas · Timberland Investments in the Americas Speech Presented...

Timberland Investments in the Americas

Speech Presented at the Timberland Investing Latin America Summit

São Paulo, Brasil3-5 March 2008

Fred CubbageProfessor

North Carolina State UniversityDepartment of Forestry and Environmental Resources

Co-Authors, Countries, Affiliations

Fred Cubbage North Carolina State University, USAPatricio Mac Donagh Universidad Nacional de Misiones, ArgentinaJosé Sawinski Júnior Universidade de Contestado-Canoinhas, BrasilRafael Rubilar Universidad Concepcion de ChilePablo Donoso Universidad Austral de Chile, ValdiviaVitor Hoeflich EMBRAPA, UFPR, BrasilGustavo Balmelli Instituto Nacional de Investigación Agropecuaria, UruguayRafael De La Torre Cellfor, USAVirginia Morales UruguayJose Alvarez CMPC Forestry, ChileHeyns Kote South AfricaRonalds Gonzalez NC State University, USAGreg Frey NC State University, USA

Outline

Forests and plantationsIndustrial roundwood productionPlantations and intensive forestryTimber returns in Southern Cone and U.S.A.Qualitative investment factorsConclusions

Forests and Plantations

Gross Domestic Product (GDP) and Growth, 2006Country GDP 2006

(Billion $US)GDP 2006 per

capita (000 $US) Forecast GDP

Growth, 2007 (%)

Argentina 213 5.5 7.5

Brazil 1 067 5.7 4.4

Chile 145 8.9 5.2

Colombia 135 2.9 5.5

Paraguay 10 1.6 5.0

Peru 93 3.4 6.0

Uruguay 19 6.0 6.0

Venezuela 182 6.8 6.2

S America Total 1 917 5.1 5.3

USA 7 814 37 ~2.4 (actual)

Africa (2004) Na 0.1-4.0 Na

Global 48 144 7.3 4.9

PriceWaterhouseCoopers 2007, IMF World Economics Outlook Database, FAO GFRA 2007

Total World Forest Area By Region, 2005

1001832

677 635 572

20628

0

200

400

600

800

1000

1200

Europ

eS.

America

N. Ameri

ca

Africa

Asia

Ocean

iaC. A

merica

Mill

ion

Ha

FAO 2005; 3.952 billion ha total

Total Forest AreaFor Major Countries, 2005

809

478

310 303197 164 133 88 69 68

0100200300400500600700800900

Russian

Fed

Brazil

Canad

aU.S.A

.China

Australi

aD.R

. Congo

Indones

iaPeru India

Mill

ion

Ha

FAO 2005

Area of Natural and Planted Forestsby Region, 2005

622506

202

974

659

28

820

13 654 28 18 1 11

0

200

400

600

800

1000

1200

Africa Asia Oceania Europe NorthAmerica

CentralAmerica

SouthAmerica

Mill

ion

Ha

Natural Forest3.812 billion ha

Planted Forest140 million ha; 3.5% of world forests

FAO 2005

Area of Natural and Planted Forests for Selected Countries, 2005

473

32 14 2

286

5.4 1.2 2.7 0.8 17.10

200

400

600

Brasil Argentina Chile Uruguay U.S.A.

Mill

ion

Ha

Natural Planted FAO 2005;natural 97%

Industrial Roundwood Production

$0$20$40$60$80

$100$120$140$160$180

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Billion US$ Linear (Billion US$)

Global Trade in Forest Products expandedsince 1980, at about 4.5% per year . . .

AAGR = 4.5%

Schuler and Ince 2005

Also, with expanded pine plantation output, the Southern hemisphere & Latin America emerged as a growing softwood lumber supply source . . .

0

200

400

600

800

1000

1200

19911992199319941995199619971998199920002001200220032004

40

50

60

70

80

90

100

110

120

1990

1992

1994

1996

1998

2000

2002

2004

U.S. Lumber Imports (MMBF) from Chile, Brazil, Mexico, NZ, Australia

Plantation Pine Timber Harvestfrom Southern Hemisphere

Million M3

Source: R. Taylor, WMMSource: R. Taylor, WMM

Million BF


0.0

0.5

1.0

1.5

2.0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004(E)

2005(E)

Canada Brazil Chile China Other

Billion Square Feet (3/8”)

Source: APA

0

2

4

6

8

10

12

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004(E)

2005(E)

Canada Other

Softwood Plywood OSB

U.S. Plywood imports coming from Brazil, and OSB from Canada . . .


South America:Industrial Roundwood Supply Potential

Current NC State Wood and Paper Science research group

Ronalds GonzalezDaniel SaloniSudipta DasmohapatraFred Cubbage

Study on investment opportunities for Latin AmericaSecondary data, personal experience, contacts, and analyses

Annual Increase in Production by Region (%)

Source: Gonzalez et al. 2008, NCSU, from FAO 2007

-1.25% -0.25% 0.75% 1.75% 2.75% 3.75%

Asia

Africa

N. & C. America

World

Oceania

Europe

South America

IAGA

Asia -15%

-5%

5%

15%

25%

35%

45%

55%

65%

75%

Bra

zil

Chi

le

Arg

entin

a

Uru

guay

Ecua

dor

Countries accountable for changes in production of indutrial roundwood in

South America

Ecu

ador

FAO 2007, Gonzalez et al. 2008

Production and Consumption of WoodSouth America, 1961-2005

Source: Gonzalez et al. 2008 NCSU, from FAO 2007

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%19

61

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003 Years

S.A

. Wor

ld S

hare

Pro

duct

ion

0

20

40

60

80

100

120

140

160

180

200

S.A

. Pro

duct

ion

(Mill

ion

m3 )

S.A. World Share Production S.A. Production

FAO 2007,Gonzalez et al. 2008

Imports of Industrial RoundwoodChina and India, 1995-2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Years

Indi

a (m

illion

m3 )

0

5

10

15

20

25

30

Chi

na (m

illion

m3 )

India China

Source: Gonzalez et al. 2008, NCSU, from FAO 2007FAO 2007, Gonzalez et al. 2008

Production and Consumption of Industrial Roundwood in South America, 2003


0 20 40 60 80 100 120

Brazil

Chile

Argentina

Paraguay

Uruguay

Peru

Colom bia

Ecuador

Venezuela

Bolivia

Guyana

Surinam e

Million m 3Production Consum ption

ArgentinaBrazil

Chile


Per Capita Consumption of Industrial Roundwood in South America, 2005


0.66 0.63 0.63

0.400.36

0.24

0.09 0.09 0.06 0.04 0.04

2.02

0.0

0.5

1.0

1.5

2.0

Chi

le

Uru

guay

Par

agua

y

Bra

zil

Sur

inam

e

Guy

ana

Arg

entin

a

Bol

ivia

Ecu

ador

Per

u

Ven

ezue

la

Col

ombi

a

m3 /p

erso

n


Plantations and Intensive Forestry

Total Plantation Area in AmericasFor Major Countries, 2005

53842661

1229 766 754 627 328 164 43

17061

0

4000

8000

12000

16000

20000

U.S.A.

Brazil

ChileArg

entin

aUru

guayPeru

Venez

uelaColombia

Ecuad

orPara

guay

Thou

sand

Ha

FAO 2007, Asoplant 2007 for Venezuela

Industrial Roundwood Harvest from Plantations

172152

30

147

100

322

0

50

100

150

200

Europ

eS.

America

Africa

AsiaN. A

merica

Ocean

iaC. A

merica

Mill

ion

M 3

FAO 2006; country reports; Brown (1999); DANA; SOUTHEM, Siry et al. 2005

Current Industrial Roundwood Harvestfrom Plantations

635 million cubic meters 40% of global industrial wood supply as of 2005

Fast grown plantations dominate production in Brazil, Chile, Australia and New ZealandBrown (1999)

25% of global industrial roundwood productionJaakko Poyry (1999)

35% of global industrial roundwood production

Plantation Speciesand 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

Plantation Advocates

~1/4 of world industrial timber harvestsRapid growth ratesProduce more wood on less area; conserve landGood use of scarce resourcesGenerally assured demand and marketsHigh rates of timber investment returnsEconomic development and forest products industryConserve natural forests through substitution of intensive management

Plantation Critics

Conversion of natural forestsBiological desertsDestructive of communitiesHarm the environmentExpensive and favor large industryNot really forests at all Create hydrological problems, especially water quantity Cannot supplant natural harvestsExcessive chemical useReliance on GMOs

Timber Investment Returnsin the Southern Cone and Southern U.S.

Fred Cubbage, Patricio Mac Donagh, José Sawinski JúniorRafael Rubilar, Pablo Donoso,

Virginia Morales, Gustavo Balmelli, Gustavo Ferreira, Vitor Hoeflich Jose Alvarez, Jacek Siry

MethodsSelect countries

Southern Cone, USAArgentina, Brazil, Uruguay, Chile, US South

Select principal commercial timber species or prospects – exotics and nativesAuthors’ estimates of:

Growth rates, typical current practices, geneticsFactor costs and output prices

Develop cash flow analyses / spreadsheetsCapital budgeting analysesIterative review by authors and foresters in each countrySensitivity analyses – land, reserves, subsidies

Assumptions

Discounted cash flow analysisReal (constant) input costs and timber prices

No inflationReal discount rate of 8%

No land costs in base caseBefore taxRepresentative sitesGood plantation and natural stand practices

Productivity of Plantations Pine

3530

2022

12

0

10

20

30

40

P TaedaBrazil

P taedaArgentina

P taedaUruguay

P radiataChile

P taeda USA

m3 /h

a/yr

Productivity of Plantations Eucalyptus

4340 40

30

18

0

10

20

30

40

50

E dunniiBrazil

E grandisBrasil

E grandisArgentina

E grandisUruguay

E globulusUruguay

m3 /h

a/yr

Productivity of Native Plantations

18 18

1615

10

15

20

AracauriaBrazil

Nothofagusdombeyi Chile

Nothofagus raulíChile

AracauriaArgentina

m3 /h

a/yr

Productivity of Native Forests

7

4

12

4

0

5

10

P taeda USA

HardwoodsUSA

Subtropicalw/o Mgt

Subtropicalw/ Mgt

SubtropicalPerfect

m3 /h

a/yr

Rotations, Harvest Ages, and Harvest VolumesCountry/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 ReturnsCountry/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

Returns of Plantations, 2005

2.95.4

4.12

3.3 2.5

22.9 22.7 21.919

16.9 16

0

5

10

15

20

25

Brasil Edunii

Brasil Egrandis

Uruguay Egrandis

Brasil ErvaMate

Chile Pradiata

Brasil Ptaeda

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

8% discount rate; no land cost

Land Expectation Value Internal Rate of Return

Returns of Plantations, 2005

2 1.2 1.5 0.6 0.4

15.113.8 12.9 12.8

9.5

0

5

10

15

20

25

Uruguay Ptaeda

Argentina Egrandis

Argentina PTaeda

Uruguay Eglobulus

USA P taeda

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)



Returns of Native Species / Plantations, 2005

1.6

-0.15

12.410.9

7.8 7.4

-0.03

1 0.8

13.6

-5

0

5

10

15

Chile Nothofagus

dombeyiPlanted

BrasilAracauria

Planted

ChileNothofagus

nervosaplanted

USA Pinustaeda Natural

ArgentinaAracauria

Planted

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)



Returns of Native Forests, 2005 4.3

3.6 3.6

1.7

-0.51 -0.11-0.14-0.31 -0.02<0

-1

0

1

2

3

4

5

USA Pinuspalustris

USAHardwoods

SubtropicalNative

"Perfect"

SubtropicalNative with

Management

Subtropical Native withoutManagement

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)



Sensitivity Analyses Assumptions,2005

Country/Species

Planted Area (%)

Land 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

Sensitivity Analysis of Separate Scenarios, Pinus Taeda in Southern Brazil, 2005

3.1 1.6 0.6

7.3

17 16.1

8.86.4

23.7

-0.9

-5

0

5

10

15

20

25

Base, NoLand Cost

Base, Only55% NetPlantable

Area

Base WithLand Cost

Base WithLand Cost,55% NetPlantable

Base, HighYield & High

Price, NoLand Cost

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

8% discount rate; $2500/ha land cost


Sensitivity Analyses – Summary Results, IRR

Country/Species

Base w/o Land Costs

Base, Less Planted

Base with Land Costs

Base, Less Plantedw/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 12.9 11.7 9.9 8.3 15.9 19.8

CH radiata 16.9 16.1 9.8 8.4 23.5 38.0

US taeda 9.5 9.2 5.9 5.0 11.0 12.3

Timber Investment Returns, 2008

Preliminary Results

Returns of Plantations, Selected Countries, 2008

0.2 0.92.8 1.9

8.511.1

19.6

11.1

0

5

10

15

20

25

USA P taeda Paraguay P taeda

Paraguay E. grandis

South Africa P. Patula

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

8% discount rate; no land cost; Sources: Frey 2007, Cubbage 2008, Kotze 2008


Returns of Plantations, Colombia, 2008

5.3 5.34.1

16.6 15.5 14.7

11.2

1.6

0

5

10

15

20

25

Eucalyptus P tecumanii P Maximinoi P Patula

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

.7.

8% discount rate; no land cost; Sources: De la Torre 2008


Returns of Plantations, Venezuela, 2008

2.91.4 2.5

9.6

22.4

18.7

15

21.2

0

5

10

15

20

25

Eucalyptus Melina P. Caribea Teak

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

8% discount rate; no land cost; Sources: Gonzales 2008, Carrera 2008


Returns of Plantations, Southern Cone, 2008

4.6 3.2 1.8 2.4 2.8

26

20 21.422.9

15.6

0

5

10

15

20

25

30

EucalyptusArgentina

P. TaedaArgentina

E. GrandisUruguay

E. GlobulusUruguay

P. RadiataChile

Land

Exp

ecta

tion

Valu

e ($

000/

ha)

or In

tern

al R

ate

of R

etur

n (%

)

8% discount rate; no land cost; Sources: MacDonagh 2008, Ferreira 2008, Rubilar 2008


Qualitative Investment Factors

Biological, Political, Export, Regulatory

Export and Direct Investment Risk

CountryExports – Political Risk Direct Investments RiskShort Term Long Term War Expropriation

& Govt. ActionTransfer

RiskArgentina 3 7 2 3 6Brazil 1 3 2 2 3Chile 1 2 1 1 2Colombia 2 4 5 3 4Paraguay 3 6 4 4 5Uruguay 3 4 2 2 4Venezuela 4 6 4 7 5U.S.A. 1 1 1 1 1

OECD 2007; Range of 1-7; Lowest number is least risky

Biological and Political Risk

BiologicalTo date, exotic plantations bear less risk than nativesFewer native predators and pathogensIntroduced biological and chemical controlsAnts huge problem, other disasters possible, but rareCyrex in Brazil and Argentina; phytophera in Chile

Political – US > Chile > Uruguay > Brazil > ArgentinaEnvironmental regulationsGovernment stabilityFavorable investment climateSubsidies

Number of Days and Procedures Required to Start a Business in South America, 2006

Gonzalez et al. 2008, NCSU, from World Bank 2007

915

12 1115 14

17

1013

17

2732

43 4550

6974

102

116

152

0

20

40

60

80

100

120

140

160

Chile Argentina Colombia Uruguay Bolivia Ecuador Paraguay Peru Venezuela Brazil

Day

s

# Procedures # Days required for starting a business

Global Forest Policy StringencyCashore and McDermott 2004

5 CriteriaRiparian widthClearcut limitsRoad protectionReforestation requirementAnnual Allowable Cut limits

4 Levels of StringencyNon-Discretionary/ SubstantiveMixed: Government Discretion &/or Limited Forest area/substantiveMandatory proceduralDiscretionary

Global Forest Policy StringencyCountry Stringency Rating (1-10)

9 Alberta, BC, California, Russia, USDA FS8 Ontario, Quebec, Washington7 Indonesia, Mexico, New S Wales, Oregon, Poland6 Chile, Latvia, New Zealand5 Bavaria, Brazil Amazon, Idaho, Madhya Pradesh, S Africa4 Alaska, Finland, Sweden3 Japan2 Montana1 Louisiana, Virginia0 AL, AR, GA, MS, NC, SC, TX, Portugal

Cashore & McDermott 2004

World Forest Certification Systems and Area, ~2008 (million ha)

Forest Stewardship Council (FSC) 92.9 Sustainable Forestry Initiative (SFI) 58.1 Programme Endorsement For Cert (PEFC/EU) 65.4 Canadian Standards Association (CSA) 73.6 American Tree Farm System (ATFS) 12.1 Malaysian Timber Cert Council (MTCC) 4.7 Certificación Forestal (CertFor) 1.6 Certificação Florestal (CerFlor) 1.0Australian Forestry Standard (AFS) 8.7

~310 million has certified as of December 2007; 8% of 3.9 billion ha of world forests PEFC world total of 201 million ha, including CSA, SFA, CertFor, CerFLor, Australian

Note: ISO 14001 areas not included

Certified Forests in the Americas, 2006 (000 ha)

Country Forest Area FSC SFIATFS, CSA,

Cerflor, CertForCert as % of Total

Canada 310 134 18 892 29 150 69 200 37.8

USA 303 089 7 675 22 452 12 100 13.9

Costa Rica 2 391 77 - - 3.2

Guatemala 3 938 514 - - 13.1

Brazil 477 698 5 143 - 763 1.2

Uruguay 1 506 249 - - 16.5

Bolivia 58 740 1 987 - - 3.4

Argentina 33 021 136 - - 0.4

Chile 16 121 403 - 1 556 12.2

All Americas 1 493 469 36 948 51 603 86 879 11.7

175,430 ha in the Americas, December 2006; Source: FSC, SFI, and PEFC Program Web Sites March 2007

Conclusions

ConclusionsSouth America Wood Products & Timber

Largest increase in industrial roundwoodIncreasing share of world wood production

4% in 197910% in 2005

Increased exportsOpportunities for increased consumption per capitaIncreasing area for plantationsHigh financial rates of returnsModerate risks, but vary by country

Chile most stable, but less landBrazil and Uruguay have more land, moderate riskArgentina stable now, but less certain, then ColombiaEnvironmental regulation, certification substantial

ConclusionsInvestment Analysis - Approach and CaveatsRobust cooperative research estimate

Best available data – common practiceKnowledgeable local experts, extensive review

AssumptionsReal rates of return, 2005 pricesWithout land costs, taxesInput & timber prices vary by area, change with time

TechnologyBetter sites / growth possible better returnsBetter management possible better returnsAnd vice versa

2008 analysis forthcoming - borrador

ConclusionsExotic Plantations Returns

10% to 23% base IRRs w/o land costs Land in reserves decrease IRRs < 1%Land purchase costs and sale without inflation at end of rotation decreases IRRs ~4-11%Good land costs higher in Brazil, ChileBut possible land appreciation costsPossibility for much greater returns in S AmericaEarly investors with cheap land costs have profited most; more difficult nowBut U. S, returns have dropped, S America increased since 2005

Conclusions Natural Plantations and Stands

98% of AmericasNative plantations

Reasonable rates of return: 7%-14%Grow well on diversity of sites

USA best, at 4% to 8% IRR for natural standsTropical and subtropical natural stands

Unmanaged tropical stands likely a financial loss Selection management - returns of ~2% IRRPerfect management might yield 4% IRR

Conclusions Forestry Sector Prospects

Economic development opportunity – Forest sector GDP

2-4% Brazil, Chile1.2% USA1% Argentina, Uruguay

2 new pulp mills each in Chile and in UruguayMany new mills or pulp lines in Brazil Many sawmills and panel millsRapidly developing forest clusters

Conclusions Forestry Sector Prospects

Modest expansion everywhere Most timber need and greatest prices – Chile & Brazil Larger supply, increasing prices – Argentina New supply, establishing markets – Uruguay Stasis, declining prices – U.S. South Emerging opportunities – Colombia, others

Least risk in most developed markets/countriesLonger term less certainBiological risks may emergeBut with short rotationsAnd strong GDP and export growth

Comparative Timber Investments Returns for Selected Plantations

and Native Forests in the Americas

Fred CubbageProfessor, North Carolina State University

Department of Forestry and Environmental [email protected]

http://www.cnr.ncsu.edu/for/faculty/cubbage.html

Speech Presented at the Timberland Investing World SummitSão Paulo, Brasil3-5 March 2008

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