There is a saying that the best time to plant hardwoods is 20 years ago! No one knows what the future will bring over the next 25 years, but money is made because people look at the potential risk and compare them to the potential returns.
It takes 20 to 25 years to grow a tropical hardwood tree to final harvest. That's a long time, and a lot can happen to a country, to the climate and to the land in which the tree is rooted. Many investors like to look for a return over a short or medium term because in the imagination there is more to go wrong over a longer period.
Even with these considerations many people are placing a percentage of their portfolio into what is considered to be one of the greenest investments available, the growth of marketable woods in sustainable managed woodlands.
Many of the trees that provide the greatest return for example Mahogany or Teak only grow quickly (20/25 years) to maturity within a tropical environment.
There are many factors to be considered before deciding to invest in hardwood and these should be considered before placing any of your cash, don’t be fooled by a pretty brochure and do some in depth homework.
Here are a few considerations to examine before investing:
Government — The stability of the government is critical. This is one of the main reasons for the growth of smaller plantations in places that have a long standing stable government.
Most governments are very encouraging to investments made in foreign currencies and some offer incentives. For example, if you invest in reforestation in Costa Rica, you can apply for residency.
Squatters — Losing your land to squatters is a concern in the tropics. In many countries a squatter or wanderer can camp on your land and if you do nothing they start to establish a claim. For this reason many plantations may be in remote areas where there is no benefit in establishing a claim. Some plantations are going so far as establish themselvesaround underground water sources so that if there is a threat of claim the water drawing equipment may be quickly removed or destroyed thus removing the incentive to settle that land.
Natural catastrophe — Fires, earthquakes, volcanoes, hurricanes, and other acts of nature can destroy a plantation. In the tropics, the climate is very stable. It does not have the wild fluctuations of the North. The temperature stays pretty much the same for the entire year, and the periods of daylight and nighttime are consistent. Thankfully, when it comes to storms, the tropics do not have as severe weather as farther from the equator.
Most counties have had their weather patterns mapped by educational or scientific institutions. This information is usually in the public domain or available for a small charge.
Fire — If you plant in an area with a very pronounced dry season, fire can be an issue, especially to younger trees. Teak seems to be pretty much immune to a small forest fire after it is 3 years old, but it is best if you can avoid it. One thing is to beware of settlements of people who may be starting fires near your chosen plantation. They may do this for the purpose of removing brush, etc. In the dry season, it is very easy for a fire to get out of control.
Pests — make sure that the plantation you invest in has a qualified forestry engineer either on staff or providing regular service. There are numerous pests in the tropics that will have to be dealt with.
Also, look for a plantation that plants a mix of species instead of monocropping, a mix of species means you can reduce the chance for a disease to spread through the whole plantation.
In some countries large animals can be a problem when the trees are young, but it is hoped that environmental considerations such as long standing migration routes are avoided as plantation sites.
Neglect - This is the biggest and most serious risk. 25 years is a very long time, and it would be easy for a plantation owner to lose their enthusiasm or financial resources. Make sure that you invest with an established grower who has the financial resources to continue over a long period of time.
Market Risks
There is little chance that the demand for tropical hardwoods will drop. They are in very high demand now and have been for generations. They are essential for indoor and outdoor furniture, flooring and paneling, decking, and shipbuilding
No one knows what the future will bring, but it is sure that continual harvesting of tropical hardwoods from the rain forest will stop, if not for any other reason than that there will be no more to harvest.
Because only 1% of tropical hardwoods come from plantations, for the current demand for tropical hardwoods to be satisfied in the years to come, many more plantations will have to be established. Most industry experts expect that the price of tropical hardwoods will skyrocket in the not-too-distant future, primary cost increase will be due to scarcity.
Teakwood wholesale selling prices are posted each month by the International Tropical Timber Organization or ITTO. ITTO is an independent, international trade organisation that brings together producers and consumers of tropical timber to develop policies and information on all aspects of the world tropical timber economy.
Over the last 30 years, Teakwood prices have increased more than 10 fold, increasing at an average annual rate of 8.3%. In the last five years, the lowest inflationary 5-year period (average 2.3%) in the last 35 years, Teakwood continued its impressive upward trend with wholesale prices increasing at an average annual rate of 7.1%.
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