The march toward China: emerging timber markets

21 Sep

I recently attended the 8th annual Who Will Own the Forest? conference, and I must say it was every bit as disorienting as I expected it to be.

As a forestry student, I thought that attending this conference would provide me with valuable insight into the bottom line aspects of private forestry in particular, and that this would expand my perspectives beyond the scope of forest management. And I did come away with a better understanding of those things, to some extent. On the other hand, the forestry conventions I generally attend are densely packed with directly-applicable information and lots of straight talk — so I felt a little out of my depth immersed in the world of finance.

There was a lot of “how is this useful to me?” and “what are they really saying, here?” running through my head, to be sure. One particular session stands out to me as an example: Pacific-Rim Developments, presented by Bill Liley of Indufor Asia Pacific. Strangely, it struck me both as the most “real talk” I’d heard all day and also as a strictly insider conversation.

While it wasn’t a complete tidal wave of financial jargon, so much of it was opaque that I wondered if anyone truly expected there to be any field foresters in the audience. I must confess that I spent a little time looking around to see if anyone else was the slightest bit confused. Either foresters have great poker faces or a much better understanding of pure finance than I’ve been led to believe. Or none were present.

Some of the talk was understandable enough — anyone can grasp returns and risk, and I’m pretty sure I know what they mean by “squeezing the margins” of saturated markets in search of any last fibers of profit left to whittle out. But I admit that “churn” and frequency distributions of internal rates of return were a bit obscure, so take this post with a grain of salt.

This particular talk about the Pacific Rim centered on analyzing current market trends for timber in the South Pacific and an exploration of emerging markets from Southeast Asia to southern China. Essentially, it would seem that Australia and New Zealand have the best risk-versus-return profiles, but there are currently only the slimmest opportunities for new investors to enter these markets. On the other hand, there has been a calculated but limited incursion of TIMOs — or timberland investment management organizations — into emerging markets from the Solomon Islands up into the Jianxi/Fujian provinces of China, with plenty of room for new investors.

This discussion of a concerted “Northern Migration” into these markets was a bit unsettling, especially combined with the scene at the World Forestry Institute. Allow me to explain.

Generally, driving up to the World Forestry Center involves a parade of parents and kids ranging about between the parking lots, the zoo and the Portland Children’s Museum. The area around the forestry center is generally pretty empty, and then foot and motor traffic pick up again along the road to the Japanese Garden and Hoyt Arboretum. Instead, when I arrived, that unpopulated middle stretch was bristling with suited businesspeople in a spectrum of neutral and greyscale. Most were older white men, although there were plenty of younger white men. It’s not fair to imply that there were no women or people of color, but scores of white men were the overwhelming feature of the crowd.This, coupled with discussions about a sort of determined deployment of financial troops into emerging timber markets painted more than a vaguely colonialist picture for me. Dear readers, I was definitely unnerved.

However, it is very important to point out that my palpitations are at least partially unfounded. The potential for exploitation always exists in such situations and history shows that people seem to have a hard time being good when profits are at stake. But I was relieved and heartened to learn that the investments discussed at this conference do not necessarily have to herald environmental destruction or ruthless exploitation of foreign peoples.

Indufor incorporates sustanability and renewability into their mission, and Liley emphasized the importance of hiring people that speak the local language (Mandarin in particular), being prepared to follow different environmental laws, and to take care that logging operations don’t disturb downstream areas or lowland farming. He talked about the very small, intensely manual sawmill operations ubiquitous in China, but emphasized their high recovery rates — the message was definitely one of adapting to location.

I’m also reminded of a timberland tour I took in the spring with a representative from Port Blakely timber company. The thing that remains most vivid to me was his explanation of the company’s move into the New Zealand timber market. They emphasized populating the operation with locals — in fact, only one American supervisor was assigned from the beginning, and eventually the whole thing was put into the hands of the New Zealanders. This struck me as profoundly understanding and a great way to foster the goodwill with the public that foresters talk about so often these days.

The company also built bridges with indigenous people, buying up a piece of land sacred to the Maori and returning it to them. Not to work, not for timber production. Just to make sure it wasn’t sold to someone else. I was truly impressed, particularly that a privately-owned company would go to such lengths to be a contributing part of the community rather than just making profit.

Which is not to say that I am inspired with the same level of confidence in the dealings of Indufor. That might be different if I knew more about their operations, but it remains that the scariest thing I heard at the conference also came in the Pacific Rim talk. In the course of a full rotation, one can derive each parts of the process, and doing so shows that reinvesting in the next crop will lose you money. From what I can tell, Indufor seems interested in the voluntary carbon market, bioenergy and socio-economic projects within the communities where they have holdings; nonetheless, this statement on reforestation in relationship to the bottom line brought me to a full stop.

Through the course of my forestry education, I’d like to think I’ve come to strike a solid, fact-based balance between pro-timber and pro-conservation stances. Profit is necessary for driving and implementing stewardship initiatives, and harvest is much better for forest health than the average person might imagine. I’m still not sure what to make of the blunt statement — to an audience of investors, mind you — that putting money back into a full rotation is not really profitable.

At least I’ve gotten something very real out of attending this conference, which is that it’s important to keep up with all aspects of my industry. If I am very lucky, maybe I can invite Bill Liley to provide further comment here in another blog post. Keep your eyes peeled!

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6 Responses to “The march toward China: emerging timber markets”

  1. Alexis - proud mother-in-law September 21, 2012 at 6:07 pm #

    So so totally rock. Kitt!

  2. Andy Vieira September 22, 2012 at 8:51 am #

    Thinking of timber companies as environmentally forward is a new idea to me. Thanks for sharing your insight. For me it was another of life’s little reminders to not assume I know more about things than I really do.

    • xylem_up September 24, 2012 at 1:32 pm #

      Not all of them all the time, but some really do go above and beyond!

  3. Aaron Rhodes September 22, 2012 at 10:17 pm #

    Nice post. We live in a dynamic world with many perspectives, differing views inundated by a flood of information. There has to be a happy median between resource exploitation and environmental stewartship. Afterall, unlike most economic models assume, our resources are not unlimited. Cheers.

    • xylem_up September 24, 2012 at 1:33 pm #

      True. I’d love to see more financial analysis factor in things like carrying capacity!

  4. Dori Wimberley September 23, 2012 at 5:30 pm #

    Interesting.

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