A Growing Investment
Trading in forestry as an alternative, ethical asset makes long term sense, argues Chris Bourne
If you could produce a new multi-purpose material that grew itself and whilst doing so, absorbed carbon dioxide and produced oxygen. One that needed only sunlight and water and that came with a large range of capabilities. You would indeed be on to a healthy money-making-machine. Technology has yet to produce such a product, and whether it will in the future remains highly unlikely. But let s not fret, because what we currently have is more than a match for any technological substitute. It has worked exceptionally well for thousands of years, and save for a major global climatic catastrophe, it will invariably continue to do so for thousands more.
It seems almost un-believable, yet we are all familiar with wood that we forget how incredible it is as a living material. We also tend to under estimate its value as a profitable article of trade. Simply put, timber does not actually need to rise in price to make it more intrinsically valuable, as trees naturally increase in size and thus become more valuable over the course time. So in these times of economic turmoil, let us cast a critical eye over the global market in timber and its variety of end user products, so that you can decide whether it should be part of your over all long term investment strategy. Let us look at whether it is possible to turn a piece of land into a thriving forestry plantation and from there into valuable timber and paper- thick- low –risk profits.
Two broad views about general trends in end-use should be considered. One is that solid wood products (sawn wood and plywood) will continue to dominate these markets. While the other is that fibre-based and engineered wood products will gradually increase market share. The first view suggests that forest plantations should be planted with high quality timber species, on long rotations and with high levels of investment in silviculture (thinning and pruning). The second view, a technology based future, would suggest utilising fast growing high yield species to maximise fibre production whilst minimising maintenance costs.
World population growth and demographic trends are dominant factors when assessing the long term prospects for the global timber market. If population growth currently continues at today’s mean average rate, by 2030 we will be in need of copious amounts of new properties, both residential and commercial. The United Nations Food and Agriculture Organisation estimates that because of projected population growth, the world consumption of wood products will rise by sixty percent over the next twenty five years. China alone will have to build fifty new cities the size of London in the next twenty years in order to house its rising population. Its urban population is forecasted to rise from 530 to 875 million by 2030. Again, this will have a significant and favourable affect on timber supplies and prices.
Although the global economic crisis has severely affected the majority of the world’s residential and commercial construction sectors, in addition to the luxury yacht and boating markets to name but a few, the long term outlook for the world timber market, plus its catalogue of wood based products looks extremely healthy. Deforestation rates, projected population and demographic trends coupled with positive American, Chinese and Indian economic factors all point to a bright future for timber and its vast array of products.
Unlike most investments a tropical timber plantation requires a considerable period of time to reach fruition. There is however, several timber investment companies offering growth investment programs where initial returns can be obtained within three to five years. Nevertheless, for the highest returns, rule of thumb dictates a period of ten to fifteen years depending upon species and silviculture practices.
The problem with today’s stock investments is the gamble you must be prepared to take. The volatility of the Stock Market is a constant threat. Ask any broker, they will tell you the same thing; ‘‘Yes, there is an element of risk involved’’. Are you prepared to run that ‘element of risk’.
In comparison to Forestry Investment, virtually no risk is involved. You’ll hear of fires terrorising forests here and destroying forests there. These aren’t the forests we work with for that reason. The trees that you invest in are grown in the Rainforests reforestation project. It’s all in the name ‘Rainforest’, and needs only a minor explanation. It rains, a lot. To compare: the average rainfall in Dublin is just over 27 inches per year. That seems like a lot of rain. Now, multiply that amount by four and you will have a vague conception of the amount of rain that falls in the rainforest, over 100 inches per year! With the humidity at a constant 77 – 88% the forests even produce its own ‘internal rain’. Fire is of no concern.
If you would like facts in numbers, this is what we’ll give: A prime example is the Great Depression, a true time of economical crisis. The prices of stocks fell by more than 70%. At the very same time, timber was up 233%. To go even further, during three of the worst market downturns of the past 100 years, (1911-20, 1929-41 and 1966-81) timber consistently outperformed the S & P. This is not simply coincidence.
Let’s take a walk into the market. You invest your money into stocks and after three years (God forbid) we have another financial recession. The Market drops as does the Stock, as does your money. No predictions, no warnings. It hits like a tsunami and it washes away your precious savings. All that you’re left with is that simple metaphorical safety raft (made from timber).
Now on that same walk into the market. You invest your money into trees. Just like the tree which grows at the bottom of your garden. What happened to that tree during the recent economical crash? I’ll take a stab in the dark here and guess that that tree continued to grow. Visualise this tree as your investment. Regardless of the current global economical situation, as long as the sun continues to shine and the rain continues to fall (two natural sources that are of the abundance in the Rainforest), your money will continue to grow.
