An energy crisis

Late rains have caused an energy crisis in Panama.  Hydroelectric generators, as with most tropical economies, are this country’s main source of energy; so when weather patterns don’t hold up, the whole system falters: Schools have been closed, A/C prohibited during certain times of the day, public offices have shortened business hours, and rolling blackouts may follow.  People are angry.  A national group of engineers has demanded a government plan for alternative energy, parents are confused and don’t know what to do with their children, and in cattle country, ranchers are demanding subsidies for feed, the problem has affected everyone.

Deforestation means reduced evapotranspiration (evaporation of plants and soil) resulting in both a decrease in rainfall and changing annual rainfall patterns with unusually dry conditions

In a recent newspaper article describing the predicament, the ranchers complain of climate change, expressing frustration at their parched fields and demand government action.  The problem, however, lies at their feet and looking for a bail-out is like sweeping dust under the rug.  Long-term watershed management has to be a part of the conversation.

Latin America’s #1 driver of deforestation is the cattle frontier. Photo credit: Andy Berry

In other words THE essential ingredient for your operation (water), be it agriculture, forestry or ranching is directly dependent on natural forests.  We can assume this (water cycle) process, can happen elsewhere, but there is significant evidence that suggests forests have an effect on precipitation in their immediate area.  (See TED talk ‘How to Restore A Rainforest’.)

There is simply NO conversation about the effects of deforestation on the water cycle.  Trees, brush and spores play an integral cycle in the tropical water cycle.  But because more pasture, means more cattle and more meat, (and therefore money) cattle ranchers will generally clear as much land as possible.  Right to the edges of their land.  It is no secret that the vast majority of deforestation in Central America is driven by the cattle frontier.    The process goes something like this:

1. Sell family plot

2. With the money, buy cheap land in remote areas (usually tree covered)

3.  Extract and sell all and any valuable lumber on property

4.  Burn

5.  Apply herbicide

6.  Introduce/establish hardy exotic grass for pasture

7.  Truck in cattle

8.  Make 2, maybe 3% annual profit

There’s a saying here: “A cattle farmer lives poor and dies rich”.  This isn’t because cattle eventually become profitable, it’s because of land-value appreciation.  And its true, cattle ranchers occasionally end-up owing significant real-estate.  Recently, while pitching an environmental restoration project to a cattle ranching association, a colleague of mine posed the question: what would your land be worth without water?  Unanimously, they all agreed that it would be worth close to nothing.  Interestingly they all understood, from firsthand experience no-doubt, that forested areas have more water and more rain.  The idea then is to convince them that if they can each allocate a small percentage of their holdings to conservation, particularly along waterways, that there is tangible economic upside.  I wrote about this concept in an earlier post.  Its an uphill battle I’m sure, but based on the receptive conversation I think these situations do make people reconsider their role climate change .   Conversation about drought, particularly in the tropics, must include reforestation and conservation.  Governments would do well to incentivize cattle operations that conserve forested areas or employ forward thinking silvo-pastoral systems instead of exacerbating the problem by buying them transported feed, or subsidizing beef.

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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.