Money grows on trees

Worried about global warming? I have one word for you. Trees. And if you are the type who only thinks in terms of profits, as in something you can take to the bank, I still have one word for you. Trees.

According to an article in The Economist, investors have started to put their money into trees. Endowments and pension funds are now including timber as a "hard asset" in their portfolios. And that’s not because they were touched by Al Gore’s movie. They are down-to-earth, ROI types.

According to The Economist the excitement can be measured in terms of well… ROI or return on investment. "Average annual returns on timber — meaning managed preserves that are eventually harvested — have outstripped those from leading global stock indices, property, oil and gold for the past decade."

Worldwide, timber has attracted more than $20 billion of investment from institutional investors, The Economist reports. Investor interest is strongest in America, where imaginative university endowment funds have embraced timber along with other "alternative" assets. The trend has spread to Europe.

Of course, there is the added "feel good effect" for investors in timber. They know they are doing something good for the environment too, preserving biodiversity on lands that might otherwise be logged recklessly. Trees, because they take years to mature, The Economist notes, are particularly attractive to investors with a long-term view like pension funds looking for investments to offset long-term liabilities.

Now that a lot of money has moved in, The Economist reports, returns on timber in developed markets have fallen, pushing investors towards emerging markets, notably in Africa. These include a teak plantation in Tanzania, and a teak and hardwood plantation in south-west Sudan. "Even with 25 years of civil war, trees grow," says Michael Turner, a partner who manages one such fund. He is considering additional timber assets into Kenya, Uganda, Zambia and Congo.

Lately, timber has gained another attraction: It offers potential for tapping into the trading of carbon offsets. The role of governments, The Economist says, is to provide adequate conditions for investment — mainly, a respect for title, and for the law of contract. Government has proven itself incompetent in the matter of planting trees itself. 

Can the Philippines achieve the same success as other countries in putting up commercial tree plantations and offer these as hard assets for investors? Of course the answer is yes. If we do it right by leaving the politics out. I am sure Joe de V’s billion trees proposal isn’t the way to go.

But in fairness to Joe de V, he has the right basic idea. As he pointed out in his bill, of the country’s forestland of 15.9 million hectares in the 1950s, only about 6.6 million hectares are left today. Thus, there is an urgent need to rehabilitate and reforest our mountains, especially our watershed areas.

The bill aims to target the planting of a billion trees covering about a million hectares over a period of five years. And here is where I think, Joe de V becomes less serious. He proposes to tap the police, local government units, military, upland communities, the private sector, NGOs and civic organizations in the reforestation program. I am undecided whether I should yawn or I should laugh. Joe de V can be hilarious without meaning to be.

He simply can’t be serious, unless the real objective is to convert public pork barrel funds into private bank accounts. We have gone on this route in the past (borrowed money from multilaterals at that) and after all the money is gone, the mountains are as bald as ever. Anything that depends on government functionaries, as in Joe de V’s bill, is bound to fail, based on experience.

If we want to tap into the investment phenomenon reported by The Economist, we must think in terms of well managed timber reserves, usually by for profit private sector concerns. Open it up to foreign investors, private companies with proven track record in forest management. Give them proper incentives and let the profit motive do the rest. This is better than mining.

Theoretically, the Philippines is ideally situated to cash in on this trend towards timber reserves as bankable hard asset investments. In fact, the Philippines enjoys certain natural advantages that can make the country very competitive in tree plantations.

The eastern Mindanao/Caraga region, for example, enjoys whole year round substantial rainfall and sunshine. Because of this, certain species will grow to harvestable maturity in this weather in eight to 12 years as compared to 25 to 30 years in New Zealand and even 50 to 60 years in the major wood, pulp and paper countries like Finland, Sweden, Canada and the United States. In fact, I am told, the trees here grow so fast, the five- to eight-year-old trees can already be used as input to provide early revenue.

Unfortunately, we have wasted the advantages nature gave us by failing to develop tree plantations as an industry. The only viable local tree plantation that I know of that withstood the test of time is Picop. I have seen what they have in Bislig, Surigao del Sur and it seems they have been doing it right. It is unfortunate that Picop is not only not getting incentives from government, it is even being given a tough time to operate and may even be shut down if it loses a case pending in the Supreme Court.

From what I have read on the subject, it appears that the only economically efficient way of running tree plantations is in relation to a proximate pulp and paper mill. That’s because over 95 percent of a tree is used in an operation that’s integrated with a pulp and paper mill. Saw timber bound to saw mills and board industry only use the central trunk or 46 percent of a tree. Picop says its existing manufacturing complex can process not only the central portion of the tree for saw timber and plywood but also the tops and bottom for pulp and paper production.

An operation like Picop’s has the economic incentive to properly manage the planting and harvesting of its trees. Picop also has done comprehensive research and development work on the various species of trees that will grow very well in the soil, topography and weather patterns of eastern Mindanao and Caraga region. It would be a pity if we lost its in-house technology and storehouse of knowledge gathered over the last 40 years, just because a politician has misrepresented its case before the courts.

Anyway, we do need to do something about our deforested areas as a matter not just of economics but survival. But it will take a lot more than just sticking as many seedlings into the ground to honestly say we are finally doing something by way of reforestation. There is a science to this that requires the resources and the for profit motivation of companies like Picop to be reasonably assured of success.

If even ungovernable African countries are now able to attract international investors to put money into their forest plantations, it would be a national shame if we are unable to get our act together to take advantage of this growing investor interest in trees as hard assets.

Let’s stop talking and start making money grow out of trees.

Global warming

Jay Leno said in his show…

"According to a survey in this week’s Time magazine, 85 percent of Americans thinks global warming is happening. The other 15 percent work for the White House."

Boo Chanco’s e-mail address is [email protected]