The case for Genuine Mahogany

Last month, an article about Genuine Mahogany was featured in National Geographic magazine.  In it the author discusses its threatened state, demand, and solutions to curbing its illegal harvest.  Since most large Genuine Mahogany (Swietenia macrophylla) stands are found in the remote forests of South America controlling its illegal harvest has been difficult, despite its endangered species status (cites.org).  Apparently logging companies will buy or lease legal forest concessions, usually quickly depleted, but then will use these permits to sneak into adjoining protected forests or indigenous territories.  These circumstances are met with increased patrolling and stricter trade laws but in the end, like drugs, the product will make its way to the consumer.  Its a great read, but I ask myself why one of the world’s great timber species is still rejected as a plantation crop.  I know the answer, I’ve worked with foresters and timber investors my whole life, it all come down to a pesky insect.  The Mahogany shoot borer (Hypsipyla grandella), damages trees when its larva bores into and kills the terminal shoot. A lateral branch grows upward to replace the lost terminal shoot, resulting in a crooked main stem. Also, the damage to the terminal breaks apical dominance, resulting in excessive lateral branching. (Howard and Meerow 1993). Small trees whose terminal shoots are attacked repeatedly in successive years become extremely deformed, severely reducing its commercial value/potential.  The shoot borer has created a situation in which the only considerable plantations are located on islands (exotic to mahogany) where the moth doesn’t exist, namely Fiji and the Philippines.  That said, and despite what you may hear, the shoot borer can be controlled.  We’ve been doing it for years.  There is a cost effective, easy method for doing so, the only requirement is consistent management.  The big argument is that individual control is too labor intensive and therefore too expensive.  In Guatemala, we recently did a cost study of shoot borer management for 13000 trees.  In the first year we averaged $0.16 per tree, in the second year when the trees are taller and more difficult manage, that increased by 25%.  By the third year, no more control was necessary due to height and hardening of the shoot.  Furthermore mahogany requires less formative pruning than other species because it naturally grows vertically.  There is significant data on its growth, recently a comprehensive study conducted by the University of Munich estimated optimal rotation length for mahogany at roughly 25 years, which is more than competitive when compared to other hardwoods.  This estimate is roughly in line with our own growth predictions.

Geniune Mahogany stand with zero bifurcation

Genuine Mahogany stand with zero bifurcation on lateritic soil

The biggest advantage of Mahogany against, say Teak, is its incredible robustness.  Mahogany can grow on very poor  and diverse soils, which is evident when you consider its wide distribution from Mid-Mexico all the way down to the Southern Amazon.  Meaning, even if the labor requirements are slightly higher, you can establish it on cheaper lands.  In Panama’s Western Darien “teakable” lands cost anywhere between $4000 and $7000 per hectare, marginal lands may be procured at half of that price.  That ratio remains roughly consistent throughout Central America and I speculate Brazil is similar.

https://i2.wp.com/www.swietking.org/images/pages/history/natural-range/NATRANGE1historic.jpg

Mahogany’s wide distribution is a testament to its vigor and durability

Mahogany is a “cites” listed species, meaning endangered.

The other side of this story is calculating market value for plantation mahogany and how it sizes up to Teak expectations.  And of course a quality comparison between natural and plantation mahogany.  I will be discussing both subjects in an upcoming entry.

How much should I be paying for land?

How much should I pay for land?  As always, it depends.  In the past I’ve mentioned the rising demand for high-quality arable land, a finite resource in an age of infinite growth and consumption that will undoubtedly have an effect on farmland prices.  According to farmland.org, it is estimated that 1/32 of the worlds land mass is arable.  Moreover, much of this area lies in politically or geographically isolated areas.  In Panama, Nicaragua and Guatemala, where I have worked the last few years we have seen tremendous increase in farmland prices.  A recent report estimates farmland in Brazil has quadrupled over the last decade.  On the one hand, at least from a real-estate perspective, the upside could trump concerns about rising purchase and establishment costs, on the other we will face rising costs both as consumers and investors, meaning of course plantation costs, at all levels, will continue to rise.  In Panama we still find properties in the $2000 – $3000 per hectare range, however these are consistently in areas of isolated or difficult access or poor quality broken land.  Viable reforestation farmlands are fetching upwards of $4000, assuming medium to high scale hectareage.  Guatemala, a country with a strong commodity sector has seen a similar rise due to aggressive African Palm, Rubber and Sugar Cane projects.  It is reasonable to assume therefore that, particularly for small and medium scale forest investors, will see a significant drop in scale, due to higher per hectare costs.  One possible alternative is to revisit those cheaper lands..  Specifically, I’m referring to those lands that cost less due to soil and land conditions and will therefore be less appealing to industrial teak and agriculture investors.  Naturally, you can conduct an independent analysis of what exactly might growth on these “poor” quality soils, but it is likely that you will end up with a list of native species, naturally adapted over millenia, to local conditions.  Using hardwoods as an example, you can establish nitrogen-fixing species, to degraded areas and over time restore nutrient cycling and fertility self-reliance.  Pioneer species can also play an important role in degraded lands (I’ll write more on the subject next week).    The issue here is that there is a perception that plantation native species will garner less return within the 22 to 25 year rotation cycle expected of Teak.  Now, while I refute this perception, let us assume it is true simply because that’s what you may encounter.  The question is: do I ignore these cheaper lands, based on “teakability” or do I reanalyze how I might use, and likely improve, these lands?  In other words will I achieve my goals (whether financial, social or environmental) by ignoring degraded or deforested lands? or do I plant something that I know will grow well and in all likelihood produce something valuable?  Its the difference between doing nothing and making a sound investment.  My advice in a nutshell: let your property decide what grows best!

Site characteristics, like soil and topography, will make or break your plantation.

Site characteristics, like soil and topography, will make or break your plantation.

Teak Investment, not a simple matter..

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.