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  • Archive for September, 2010

    Why Forestry Plantations are worth Investing in


    2010 - 09.03

    Over the years forestry has slowly been recognised as a very important commodity due to the value it can generate through its many uses.

    It is a key source of revenue for many governments around the globe. In particular in Brazil the plantation forestry industry has generated over R$10 billion in taxes in 2007, which in turn created over 4 million jobs.

    The most popular trees grown on plantations in Brazil are eucalyptus. These trees originally came from Australia but have adapted to grow faster in Brazil (35m3/ha/y). They are also being grown with less success in Portugal at a rate of 13m3/ha/y and Canada at a rate of 5m3/ha/y. So it is no surprise then that Brazil’s success is becoming a benchmark for the rest of the world.

    Planted forests are more efficient than native forests and act as a carbon sink while they are growing. What makes them attractive to potential investors is that there is a demand from companies cashing in on the public desire for environmentally friendly products. These companies are looking for forestry projects who can offer to conserve natural forests, increase energy efficiency and improve air quality.

    Strangely despite this demand for planted forests there is actually a deficit of forestry plantations in Brazil and this is increasing. There is hope for the planted forestry industry though with the recent government crackdown on illegal logging and the creation of a law that forces all real estate companies to prove that they are using legal wood.

    Currently there are approximately 5.3 million hectares (0.62% of its territory) of planted forests in Brazil. Of this number there is at least 1 million hectares of old plantations with low productivity.

    So taking into account the government benefits, the demand for forestry products and the low competition, there is a real opportunity here for an investor to capitalise in this fast growing industry.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Timber please click here.

    UK Forestry Commission Tests New Carbon Code


    2010 - 09.02

    The Forestry Commission is due to begin testing on a new quality assurance scheme for tree planting programmes, intended for carbon sequestration. With the demand for such projects increasing the Forestry Commission said that there needs to be a standard by which to measure their effectiveness and to ensure that real benefits are being achieved.

    The new scheme named the Woodland Carbon Code will undergo a six month pilot phase that is designed to test its effectiveness before it is officially launched in early 2011.

    In order to comply with the code organizations must show that the projects are sustainably managed to national standards. They must also show that they use standard measures for the volume of carbon that will be sequestered, this must be independently verified and meet all transport criteria issues.

    Tim Rollinson, director general of the Forestry Commission, said that the Woodland Carbon Code will “encourage more investment in tree planting in the UK”.

    “There are now many commercial schemes that encourage individuals and businesses to contribute to tree planting to help compensate for their carbon footprint. But before investing in projects, people want to know that schemes will actually deliver what they claim,” he added.

    The announcement of this scheme comes just a few days after research printed in Science magazine found that the ability of the world’s plants to absorb carbon dioxide has dropped  in the last decade.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Brazil please click here.

    Making a Fortune from Brazil’s Good Fortune


    2010 - 09.01

    According to the International Monetary Fund, Brazil has recovered from the global financial crisis faster and sooner than other economies. Brazil is at the enviable position for sustainable growth and again according to the IMF Brazil’s economy is estimated to grow at a healthy 7.1% this year.

    This level of growth represents a sustainable pace that is unlikely to generate the rapid inflation that has plagued this part of the world during the past economic expansions. In terms of inflation rate the IMF has predicted a Brazilian inflation rate of 5.8% during the remainder of this year. This may appear a tad high, at least compared to US standards but it is actually quite modest if compared to past inflation trends in Latin America.

    What makes Brazil so enviable is that Brazil’s growth is attributable to not only strong natural resources development and export growth but also to domestic consumer demand. This domestic consumer demand is increasing as Brazil’s population continues to improve their economic status and living conditions.

    By expanding credit the Brazilian financial sector is appropriately supporting growth and the economy as a whole is profiting from heavy capital inflows coming from abroad.

    So the question is, how does an individual investor make a small fortune from the opportunities presented from Brazil’s good fortunes?

    The answer to that is very cautiously. For all the good news coming out of Brazil it is still an emerging market. However, there are a number of different approaches to access opportunities in Brazil in both an easy and cost effective way.

    Of those various options I have listed below three of what I consider to be the safest and most secure ways of investing in Brazil.

    1. Bonds are a good place to start and some brazilian bonds can be bought in dollars by individual investors. In addition many emerging markets bond mutual funds have considerable positions in Brazil as well.
    2. Investing in forestry plantations is not only very profitable with average annual returns of 10%-14% but also very environmentally friendly. Companies worth looking at for more information are The Phaunos Timber Fund, Greenwood Management and Cambium.
    3. ETF’s like I-Shares EWZ, tracks the MSCI Brazil index and can provide investors with broad access to the Brazilian economy.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Timber please click here.