Forests are critical for our survival. Nonetheless, how our society approaches forest management, timber harvesting, and investment into these semi-renewable resources is a matter of fierce debate. While deforestation rates have slowed in recent decades, questions surrounding optimal timberland harvesting and management processes persist. A recent FAO report demonstrates how a blend of natural regeneration and plantation forestry can lead to sustainable, profitable investment opportunities.
Forests currently account for an impressive 31% of the world’s total land area. Tropical forests near the equator comprise 45% of this total, with frigid boreal forests in the northern hemisphere slightly trailing at 27%. While this vast expanse of wilderness may seem perpetually renewable, new use cases for wood products continue to increase. Wood products are now present in everything from bath towels to medications to LCD screens.
These innovations, along with a rapidly industrializing developing world, are driving the demand for lumber and wood products. As developing nations industrialize, the demand for wood does not intrinsically subside but instead shifts to new use cases. In fact, demand for wood and wood products is expected to at least double by 2060 thanks mainly to the shifting applications resulting from industrialization.
While annual per capita wood consumption in tropic and boreal regions is roughly equal, over 75% of boreal timber goes into industrial wood products. In contrast, over 85% of tropical timber harvests go towards fuel purposes. This stark discrepancy demonstrates the diverse applications of timber and wood products.
Despite these usages, deforestation has slowed in recent decades. Over 7.8 million hectares of timberlands per year, on average, were lost between the years of 1990 and 2000. This rate slowed markedly between 2010 and 2020 to “only” 4.7 million hectares per year. While heartening, the rapid industrialization of the developing world threatens this steady decrease. Humanity must undertake serious considerations regarding sustainable timberland management and regeneration methods if these trends are to continue.
The natural regeneration of timberland provides a beneficial solution for timber harvesting. Sustainable logging practices have led to a sharp increase in conscious regenerative practices post-harvest. Over 2.7 million hectares of Brazilian forests have naturally regenerated between 1996 and 2015.
Notwithstanding, these practices require some human management in the form of fencing, curtailing invasive species, and assuring fauna populations do not hinder regeneration. While natural regeneration offers promising results at scale, the total land area associated with this method entails ever more extensive clear-cutting for human use.
Plantation forests present a more sustainable alternative over time. More productive timberland per hectare disincentivizes the type of clear-cut harvesting that requires natural regeneration on large scales in the first place. Despite making up only 3% of the total global forest area, plantation forests account for 20% of the world’s wood supply. This impressive proportion suggests that if select segments of deforested areas experience rehabilitation for rotating plantation forestry rather than natural regeneration, the overall land area required to meet the world’s demand for timber and wood products would decrease by 85%.
Latin America holds some of the most significant potentials for sustainable timberland investment. While Brazil contains 12% of global forest cover, only 4% of forests in all Latin America are currently certified. As Latin American governments are becoming increasingly conscious of this latent potential, efforts are presently underway to title land that was previously in legal limbo.
These efforts are occurring at the perfect time for investors. ESG (Environmental, Social, and Governance) initiatives are on the rise, and ecologically conscious practices are at the forefront of this shift. As the human population continues to grow, investors can feel confident that investing in sustainable plantation timber will not only positively impact their bottom lines but the ecology of the region in which they invest.
Exposure to plantation forests offers a multiplicity of benefits. Investors can delay harvesting until commodity prices match desired returns. The same plots of timberland are harvestable over the course of decades. Perhaps most impactfully, the underlying value of the land itself is stable relative to other asset classes.
Forests are essential to humanity’s survival, and humanity’s custodianship over this crucial resource is more critical now than ever before. Contrary to what some may suggest, profitable investments in timberland management are some of the most efficient ways to assure sustainability. Diversifying with timberland in emerging markets such as Latin America is one of the most significant ways to gain access to a robust, developing asset class.