Global timber investments, wood costs, regulation, and risk

Abstract

We estimated financial returns and wood production costs in 2008 for the primary timber plantation species. Excluding land costs, returns for exotic plantations in almost all of South America – Brazil, Argentina, Uruguay, Chile, Colombia, Venezuela, and Paraguay – were substantial. Eucalyptus species returns were generally greater than those for Pinus species in each country, with most having Internal Rates of Return (IRRs) of 20% per year or more, as did teak. Pinus species in South America were generally closer to 15%, except in Argentina, where they were 20%. IRRs were less, but still attractive for plantations of coniferous or deciduous species in China, South Africa, New Zealand, Indonesia, and the United States, ranging from 7% to 12%. Costs of wood production at the cost of capital of 8% per year were generally cheapest for countries with high rates of return and for pulpwood fiber production, which would favor vertically integrated firms in Latin America. But wood costs at stumpage market prices were much greater, making net wood costs for open market wood more similar among countries. In the Americas, Chile and Brazil had the most regulatory components of sustainable forest management, followed by Misiones, Argentina and Oregon in the U.S. New Zealand, the United States, and Chile had the best rankings regarding risk from political, commercial, war, or government actions and for the ease of doing business. Conversely, Venezuela, Indonesia, Colombia, and Argentina had high risk ratings, and Brazil, Indonesia, and Venezuela were ranked as more difficult countries for ease of business.