For years people have asked me about Teak investment, not long ago considered the “golden ticket” of timber investment, today it is considered (a more-sober) reliable, long-term investment in a world looking for tangible assets. The current view, while undoubtedly possible is, well, complicated. Teak is a fast growing species, with a proven mid-term market (in India & China) and interesting upside, that much I can say with certainty. During the Teak craze (mid 90’s) we saw major plantations established, most notably in Costa Rica and Brazil, these were well-funded, well-intentioned projects. Years later, we would find that most of these plantations would under-perform both financially and biologically. You can hardly blame any one person, or any specific efforts, the science behind teak management was after all young, particularly in Latin America. Moreover value projections were based on natural forest stands in Indonesia and Burma, places where 100 year old trees could yield large dimension and of course beautiful lumber. Similarly growth projections were simply optimistic estimates. The truth is, Teak CAN be an excellent investment, but the idea that it can be grown anywhere, without specific silviculture is a fallacy. Teak with the right conditions will perform well in all aspects, meaning trees should be able to reach optimum volume and height in the predicted 22 to 25 years that full rotations are generally estimated. This of course will have a direct effect on the project’s financial performance. Investors need to understand the importance of time, weather, soil, topography and silviculture when choosing a timber investment. Do not assume timber managers are created equal, and do not assume teak is the best fit for your piece of land. In Panama, where I am now, we estimate 4% of the land adequate for Teak! That’s not very much! The other factor affecting viable “teakable” land is that in many cases you will be competing directly with the agro-industrial sector. Teak site condition requirements are similar to Sugar Cane, African Palm, Rubber and several fruit crops, meaning competition and thus land prices for these areas will undoubtedly continue to rise. Let’s face it, high-quality, arable land in a growing world, is only going to become more expensive. So just because you found or find cheap land that doesn’t mean Teak is the right choice for you. Choose wisely!
To be clear, Teak projects, when managed carefully can be reliable, lucrative and the tangible investment you are looking for. Just make sure you do your research.
Very nicely put! We are about to quickly go through some data that corroborates your thoughts at Timberland Investing Latin America in São Paulo this week.