Comparative global timber investment costs, returns, and applications, 2020
Main Article Content
Keywords
timber investments, benchmarking, internal rates of return, capital budgeting, planted forests, carbon mitigation
Abstract
We estimated stand level timber investment returns for a range of 16 countries and 47 planted species/management regimes in 2020, using capital budgeting criteria, at a real discount rate of 8%, without land costs. Plantation management financial returns were estimated for the principal plantation countries in the Americas—Brazil, Argentina, Uruguay, Chile, Colombia, Ecuador, Paraguay, Mexico, and the United States—as well as for China, Vietnam, Laos, Spain, New Zealand, Finland, and Poland. South American, New Zealand, and Spain plantation growth rates and their concomitant investment returns were generally greater, with the exception of some pulpwood regimes, with real Internal Rates of Return (IRRs) of more than 11%. Southeast Asia had the highest timber prices and highest calculated stand-level IRRs in the world, at more than 20%. Temperate forest plantations in the U.S. and Europe returned less, from 3% to 7%, but those countries have less financial risk, better timber markets, and more infrastructure. These timberland benchmarking research efforts can be used by the private sector for considering timber investments in different countries and regions in the world, or by government and nongovernment organizations to estimate their management costs and returns, or for providing government incentives for the provision of ecosystem services such as forest carbon storage.
References
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Damodaran A. 2012. Returns for stocks, bonds, and T-Bills. Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current. Accessed at: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html. 15 April 2019.
de Morais Junior VTM., Jacovine LAG, Alves EBBM , Torres CMME, Salgado Faustino I, de Jesus França LC, Soares da Rocha SJS, Simiqueli GF, Blenda Silva L, Alcántara-de la Cruz R. 2020. Growth and survival of potential tree species for carbon-offset in degraded areas from southeast Brazil. Ecological Indicators 10: 117. https://doi.org/10.1016/j.ecolind.2020.106514
Guldin R. 2020. Trillion trees initiative: needs beyond "Plant 'Em Green Side Up". Presented at the Society of American Foresters Convention, 2020. Online. 4-6 November 2020.
Holl KD, Brancalion PH. 2020. Tree planting is not a simple solution. Science, 368(6491), 580-581. https://doi.org/10.1126/science.aba8232
IBÁ Annual Report, Indústria Brasileira de Árvores (IBÁ). Relatório Anual. 2021. São Paulo. 93 p.
Investopedia. 2022. Basis point (BPS) explained for interest rates and investments. Accessed at: https://www.investopedia.com/terms/b/basispoint.asp. 21 December 2022.
Klemperer D. 2003. Forest Resource Economics and Finance. Blacksburg, VA, USA: David Klemperer.
Klinger SK, Bayne M, Yao RT, Payn T. 2022. Credence attributes in the forestry sector and the role of environmental, social and governance (ESG) factors. Forests 13(3): 432. https://doi.org/10.3390/f13030432
Korhonen J, Nepal P, Prestemon JP, Cubbage FW. 2020. Projecting global and regional outlooks for planted forests under the shared socio-economic pathways. New Forests 2020. https://doi.org/10.1007/s11056-020-09789-z
Kröger M. 2014. The political economy of global tree plantation expansion: a review. The Journal of Peasant Studies, 41(2): 235-261.
https://doi.org/10.1080/03066150.2014.890596
Moulton RJ, Richards KR. 1990. Costs of sequestering carbon through tree planting and forest management in the United States. General Technical Report WO-58. U.S. Department of Agriculture Forest Service. Washington, D.C. 47 p. https://doi.org/10.5962/bhl.title.94273
Nocentini S, Travaglini D, Muys B. 2022. Managing mediterranean forests for multiple ecosystem services: research progress and knowledge gaps. Current Forestry Reports 8(2): 229-256. https://doi.org/10.1007/s40725-022-00167-w
Ovando P, Beguería S, Campos P. 2019. Carbon sequestration or water yield? The effect of payments for ecosystem services on forest management decisions in Mediterranean forests. Water Resources and Economics 28: 100119. https://doi.org/10.1016/j.wre.2018.04.002
Paul KI, Cunningham SC, England JR, Roxburg SH, Preece ND, Lewis T, Brooks K, Crawford DF, Polglasea PJ. 2016. Managing reforestation to sequester carbon, increase biodiversity potential and minimize loss of agricultural land. Land Use Policy 51: 135-149.
https://doi.org/10.1016/j.landusepol.2015.10.027
Prokofieva I. 2016. Payments for Ecosystem Services-the Case of Forests. Current Forestry Reports 2(2): 130-142.
https://doi.org/10.1007/s40725-016-0037-9
Siry J, Cubbage FW, Potter K, McGinley K. 2018. Perspectives on sustainable forest management: North America. Current Forestry Reports 4(3): 138-149. https://doi.org/10.1007/s40725-018-0079-2
Summers DM, Brett AB, Martin N, Hobbs TJ. 2015. The costs of reforestation: A spatial model of the costs of establishing environmental and carbon plantings. Land Use Policy 44: 110-121. https://doi.org/10.1016/j.landusepol.2014.12.002
Trump D. 2020. Executive Order 13955-Establishing the one trillion trees interagency council. October 13, 2020. Accessed at: https://www.govinfo.gov/link/cpd/executiveorder/13955. 10 September 2022.
Vanguard. 2022. Investment returns summary for selected Vanguard Funds. Accessed at: https://personal.vanguard.com/us/funds/tools/benchmarkreturns. 30 April 2022.
Vincent JR, Curran SR, Ashton MS. 2021. Forest restoration in low- and middle-income countries. Annual Review of Environment and Resources 46:4.1-4.29. https://doi.org/10.1146/annurev-environ-012220-020159
Wade CM, Baker JS, Latta G, Ohrel SB, Allpress J. 2019. Projecting the spatial distribution of possible planted forest expansion in the United States. Journal Forestry 117(6): 560-578. https://doi.org/10.1093/jofore/fvz054
Wagner JE. 2012. Forestry Economics: A Managerial Approach. Routledge Press. New York. 382 p. https://doi.org/10.4324/9780203808023
Yao R.T, Palmer DJ, Payn TW, Strang S, Maunder. 2021. Assessing the broader value of planted forests to inform forest management decisions. Forests 12(6): 662. https://doi.org/10.3390/f12060662
Zhang P, He Y, Feng Y, Del La Torre R, Jia, Tang H, Cubbage FW. 2019. An analysis of potential investment returns of planted forests in South China. New Forests 50: 943-968. Online 04 March 2019. https://doi.org/10.1007/s11056-019-09708-x
Zhang L, Sun P, Huettmann F, and Liu S. 2022. Where should China practice forestry in a warming world? Global Change Biology, 28, 2461-2475. https://doi.org/10.1111/gcb.16065. Supplementary data and Report Obtained on ResearchGate at: https://www.researchgate.net/publication/359740976_Brief_introduction_to_China' s_key_afforestation_programs_and_their_spatial_implementation_scopes_at_a_county_level
https://doi.org/10.1111/gcb.16065
https://doi.org/10.1038/s41467-020-19578-z
Bauhus J, van der Meer PJ, Kanninen M. 2010. Ecosystem goods and services from plantation forests. EarthScan. London. 254 p.
https://doi.org/10.4324/9781849776417
Beljan K., Brener M, Dolinar D. 2022. The long-term capital-market performance of the forestry sector: An investors' perspective. Forests 2022, 13, 1329. https://doi.org/10.3390/f13081329
Brancalion PHS, Chazdon RL. 2017. Beyond hectares: four principles to guide reforestation in the context of tropical forest and landscape restoration. Restoration Ecology 25 (4): 491-496. https://onlinelibrary.wiley.com/doi/epdf/10.1111/rec.12519.
https://doi.org/10.1111/rec.12519
Chudy R, Cubbage FW. 2020. Research Trends: Forest investments as a financial asset class. J For Policy Econ. 119 (June): 1-9.
https://doi.org/10.1016/j.forpol.2020.102273
Chudy RP, Chudy KA, Kanieski da Silva B, Cubbage FW, Rubilar R, Lord R. 2020. Profitability and risk sources in global timberland investments. Journal Forest Policy and Economics Special Issue on Forest Investments. 112 (2020)102037. https://doi.org/10.1016/j.forpol.2019.102037
Chudy R, Cubbage FW. 2021. Why Pension Plans and Net Zero Companies Should Consider Investing in Forestry. https://caia.org/blog/2021/12/07/why-pension-plans-and-net-zero-companies-should-consider-investing-forestry.
Chudy R, Mei B, Skjerstad S. 2022. The performance of private equity timberland funds in the United States between 1985 and 2018. Journal Forest Economics 37(2):199-215. https://doi.org/10.1561/112.00000550
Cubbage FW, Kanieski B, Rubilar R, Bussoni A, Morales V, Balmelli, Mac Donagh P, Lord R, Hernández C, Zhang P, Huang J, Korhonen J, Yao R, Hall P, De La Torre R, Balteiro L, Carrero O, Monges E, Thu HTT, Frey G, Howard M, Chavet M, Mochan S, Hoeflich V, Chudy R, Maas D, Chizmar S, Abt R. 2020. Global timber investments, 2005-2017. Forest Policy and Economics Special Issue on Forest Investments. 112(2020)102802.
https://doi.org/10.1016/j.forpol.2019.102082
Cubbage FW, Davis R, Frey G, Chandrasekharan Behr D, and Sills E. 2016. Financial and economic evaluation guidelines for international forestry projects. In: Tropical Forestry Handbook. Springer Publishing. 17 p. https://doi.org/10.1007/978-3-642-41554-8_68-2
Cubbage FW, Mac Donagh P, Balmelli G, Morales Olmos V, Bussoni A, Rubilar R, de la Torre R, Lord R, Huang J, Afonso VH., Murara M, Kanieski B, Hall P, Yao R, Adams T, Kotze H, Monges E, Perez CH, Wikle J, Abt R, Gonzalez R, Carrerro O. 2014. Global timber investments and trends, 2005-2011. New Zealand Journal of Forestry Science 44(Suppl 1):57. Accessed at: http://www.nzforestryscience.com/content/4451/s7. 5 December 2014. https://doi.org/10.1186/1179-5395-44-S1-S7
Cubbage FW, Davis R, Frey G, and Chandrasekharan Behr D. 2013. Financial and economic evaluation guidelines for community forestry projects in Latin America. PROFOR & the World Bank, Latin America and the Caribbean Region. Accessed at: http://www.profor.info/knowledge/community-forestry-enterprise-competitiveness-and-access-markets-mexico. 21 February 2013.
Cubbage FW, Davis RR, Frey GE. 2011. Guía para la evaluación económica y financiera de proyectos forestales comunitarios en México. Documento de Trabajo, Forestal Latinoamericano, No. 2. Banco Mundial Región de Latinoamérica y el Caribe. Washington, D.C. 43 p. Accessed at: http://www.profor.info/profor/knowledge/community-forestry-enterprise-competitiveness-and-access-markets-mexico. 18 January 2012.
Cubbage FW, Koesbanda S, Mac Donagh P, Rubilar R, Balmelli G, Morales Olmos V, De la Torre R, Murraro M, Hoeflich V, Kotze H, Gonzalez R, Carrerro O, Frey G, Adams T, Turner J, Lord R, Huang J, MacIntyre C, McGinley K, Abt R, Phillips R. 2010. Global timber investments, wood costs, regulation, and risk. Biomass and Bioenergy 34(2010):1667-1678. https://doi.org/10.1016/j.biombioe.2010.05.008
Cubbage, FW, Mac Donagh P, Sawinski Júnior J, Rubilar R, Donoso P, Ferreira A, Hoeflich V, Morales Olmos V, Ferreira G, Balmelli G, Siry J, Noemi Báez M, Alvarez J. 2007. Timber investment returns for selected plantation and native forests in South America and the Southern United States. New Forests 33(3):237-255. https://doi.org/10.1007/s11056-006-9025-4
Damodaran A. 2012. Returns for stocks, bonds, and T-Bills. Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current. Accessed at: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html. 15 April 2019.
de Morais Junior VTM., Jacovine LAG, Alves EBBM , Torres CMME, Salgado Faustino I, de Jesus França LC, Soares da Rocha SJS, Simiqueli GF, Blenda Silva L, Alcántara-de la Cruz R. 2020. Growth and survival of potential tree species for carbon-offset in degraded areas from southeast Brazil. Ecological Indicators 10: 117. https://doi.org/10.1016/j.ecolind.2020.106514
Guldin R. 2020. Trillion trees initiative: needs beyond "Plant 'Em Green Side Up". Presented at the Society of American Foresters Convention, 2020. Online. 4-6 November 2020.
Holl KD, Brancalion PH. 2020. Tree planting is not a simple solution. Science, 368(6491), 580-581. https://doi.org/10.1126/science.aba8232
IBÁ Annual Report, Indústria Brasileira de Árvores (IBÁ). Relatório Anual. 2021. São Paulo. 93 p.
Investopedia. 2022. Basis point (BPS) explained for interest rates and investments. Accessed at: https://www.investopedia.com/terms/b/basispoint.asp. 21 December 2022.
Klemperer D. 2003. Forest Resource Economics and Finance. Blacksburg, VA, USA: David Klemperer.
Klinger SK, Bayne M, Yao RT, Payn T. 2022. Credence attributes in the forestry sector and the role of environmental, social and governance (ESG) factors. Forests 13(3): 432. https://doi.org/10.3390/f13030432
Korhonen J, Nepal P, Prestemon JP, Cubbage FW. 2020. Projecting global and regional outlooks for planted forests under the shared socio-economic pathways. New Forests 2020. https://doi.org/10.1007/s11056-020-09789-z
Kröger M. 2014. The political economy of global tree plantation expansion: a review. The Journal of Peasant Studies, 41(2): 235-261.
https://doi.org/10.1080/03066150.2014.890596
Moulton RJ, Richards KR. 1990. Costs of sequestering carbon through tree planting and forest management in the United States. General Technical Report WO-58. U.S. Department of Agriculture Forest Service. Washington, D.C. 47 p. https://doi.org/10.5962/bhl.title.94273
Nocentini S, Travaglini D, Muys B. 2022. Managing mediterranean forests for multiple ecosystem services: research progress and knowledge gaps. Current Forestry Reports 8(2): 229-256. https://doi.org/10.1007/s40725-022-00167-w
Ovando P, Beguería S, Campos P. 2019. Carbon sequestration or water yield? The effect of payments for ecosystem services on forest management decisions in Mediterranean forests. Water Resources and Economics 28: 100119. https://doi.org/10.1016/j.wre.2018.04.002
Paul KI, Cunningham SC, England JR, Roxburg SH, Preece ND, Lewis T, Brooks K, Crawford DF, Polglasea PJ. 2016. Managing reforestation to sequester carbon, increase biodiversity potential and minimize loss of agricultural land. Land Use Policy 51: 135-149.
https://doi.org/10.1016/j.landusepol.2015.10.027
Prokofieva I. 2016. Payments for Ecosystem Services-the Case of Forests. Current Forestry Reports 2(2): 130-142.
https://doi.org/10.1007/s40725-016-0037-9
Siry J, Cubbage FW, Potter K, McGinley K. 2018. Perspectives on sustainable forest management: North America. Current Forestry Reports 4(3): 138-149. https://doi.org/10.1007/s40725-018-0079-2
Summers DM, Brett AB, Martin N, Hobbs TJ. 2015. The costs of reforestation: A spatial model of the costs of establishing environmental and carbon plantings. Land Use Policy 44: 110-121. https://doi.org/10.1016/j.landusepol.2014.12.002
Trump D. 2020. Executive Order 13955-Establishing the one trillion trees interagency council. October 13, 2020. Accessed at: https://www.govinfo.gov/link/cpd/executiveorder/13955. 10 September 2022.
Vanguard. 2022. Investment returns summary for selected Vanguard Funds. Accessed at: https://personal.vanguard.com/us/funds/tools/benchmarkreturns. 30 April 2022.
Vincent JR, Curran SR, Ashton MS. 2021. Forest restoration in low- and middle-income countries. Annual Review of Environment and Resources 46:4.1-4.29. https://doi.org/10.1146/annurev-environ-012220-020159
Wade CM, Baker JS, Latta G, Ohrel SB, Allpress J. 2019. Projecting the spatial distribution of possible planted forest expansion in the United States. Journal Forestry 117(6): 560-578. https://doi.org/10.1093/jofore/fvz054
Wagner JE. 2012. Forestry Economics: A Managerial Approach. Routledge Press. New York. 382 p. https://doi.org/10.4324/9780203808023
Yao R.T, Palmer DJ, Payn TW, Strang S, Maunder. 2021. Assessing the broader value of planted forests to inform forest management decisions. Forests 12(6): 662. https://doi.org/10.3390/f12060662
Zhang P, He Y, Feng Y, Del La Torre R, Jia, Tang H, Cubbage FW. 2019. An analysis of potential investment returns of planted forests in South China. New Forests 50: 943-968. Online 04 March 2019. https://doi.org/10.1007/s11056-019-09708-x
Zhang L, Sun P, Huettmann F, and Liu S. 2022. Where should China practice forestry in a warming world? Global Change Biology, 28, 2461-2475. https://doi.org/10.1111/gcb.16065. Supplementary data and Report Obtained on ResearchGate at: https://www.researchgate.net/publication/359740976_Brief_introduction_to_China' s_key_afforestation_programs_and_their_spatial_implementation_scopes_at_a_county_level
https://doi.org/10.1111/gcb.16065
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Dec 29, 2022
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Cubbage, F., Rubilar, R. ., Mac Donagh, P., Kanieski Da Silva, B. ., Bussoni, A., Morales, V., Balmelli, G., Vitor Afonso Hoeflich, Lord, R., Hernández, C., Zhang, P., Ha Tran Thi Thu, Yao, R., Hall, P., Korhonen, J., Luis Díaz-Balteiro, Roque Rodríguez-Soalleiro, Davis, R., Chudy, R., De La Torre, R., Lopera , G. ., Somvang Phimmavong, Garzón, S., & Cubas-Baez, A. (2022). Comparative global timber investment costs, returns, and applications, 2020 . Journal of Forest Business Research, 1(1), 90–121. https://doi.org/10.62320/jfbr.v1i1.16
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