World consumption of tropical hardwoods has grown 25 times in the last 40 years to more than 100 billion board feet per year. 

Some of the most beautiful and the most expensive wood products are made from tropical hardwoods. These items include furniture, cabinetry, boats, and musical instruments to name just a few. The demand for these products continues to increase while supply continues to decrease.

Increase in world population and decreasing supplies of tropical hardwoods is bringing intense pressure to bear on the existing short supply of mature hardwood trees. The creation of sustainable managed forests is a viable way to counter our world’s current dilemma of deforestation.

The supply of quality hardwood is decreasing rapidly. More than 40% of the world’s tropical rainforests have been lost since 1940. Rainforests are being cleared to provide food, wood, fuel, and resources to the world’s growing population; to make room for the exploding local population; and to raise cattle and grow crops. Millions of acres are being destroyed each year. So, with demand ever increasing and supply rapidly decreasing, the price of these tropical hardwoods continues to soar. With the increase in price of hardwoods and the increase in demand for them, comes a unique opportunity to grow hardwoods. Not just because it is profitable, but also because it will help save the remaining rainforests.

Demand for hardwood from tree plantations is predicted to intensify as worldwide commercial and political pressures continue to restrict the traditional logging of natural forests. Sawn hardwood is an important product both for structural and appearance type applications. Globally the important uses are furniture (29 percent), mouldings (20 percent), structural housing (18 percent), flooring and panelling (8 percent), and decorative (8 percent). Production and export of tropical wood products, such as plywood and veneer, have grown two to threefold in the last 30 years.

Carbon sequestration
It has become almost cliche, but certainly not rectified, that the world’s forests are disappearing at a rapid rate. It is determined that every minute of each day the world is losing about 64 acres of natural forests. This is unfortunate because a majority of scientists worldwide believe that the increase in greenhouse gases is related to deforestation and a significant factor involved in global warming.

Carbon sequestration refers to technological and natural processes that increase the removal of carbon and other greenhouse gases (methane, nitrous oxide, and chlorofluorocarbons) from the atmosphere. The increase in these “greenhouse gases” has been identified as a leading cause of global warming. One mature tree can absorb up to 13 pounds of CO2 a year. Actively developing trees may absorb as much as 26 pounds, which equates into five tons of CO2 per acre of trees per year.

Trees improve soil quality by adding and maintaining nitrogen and organic matter. These elements are needed to maintain water table stability, erosion control, and desertification (creeping sand). Desertification is land degradation caused by numerous factors, the main ones being climatic variations and human activities. Reforestation can reverse the loss of topsoil and vegetation coverage needed to maintain a healthy soil environment.

Timberland is a relatively new asset class, having emerged as an attractive investment option for institutional investors in the early 1980s. Given its short history and its unique investment characteristics, there are few basic research materials on the asset class available to investors. The academic community produces some work on the subject, but it is usually narrow in scope and designed to meet the rigorous requirements of peer reviewed publications rather than the needs of investors. The timberland investment sector is another source of useful information, but it too tends to produce materials that are focused on specific and tightly defined subjects, rather than on providing investors with the overarching perspective they need to make informed investment decisions. It is important to help fill this information gap by providing a high-level overview of the asset class’ history, scope and value drivers. 

Timberland Investment is the acquisition and management of a forest asset for the purpose of producing a financial return. We can offer a brief history of the asset class that includes an overview of its investment benefits and limitations. This is followed by an assessment of the different methods available for investing in the sector. We then look at the unique attributes and characteristics of the world’s timberland investment markets, an effort that includes examining the sectors of the global economy that buy and consume timber – and thus provide a foundation for investment in the asset class. We conclude with an overview of how to evaluate timberland investments and how to build, manage and exit from a timberland portfolio

Birchwood Stanhope

In addition to investment opportunities we also design tailor-made investment solutions in the form of individual mandates or specific investment strategies and their implementation.

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