By Oscar A. Gendrano, MBM 1974
Wood is a Part of our Lives
As life has existed on Planet Earth, trees and forests are key elements of human survival. They are the constant source of oxygen which they release to the atmosphere, as they absorb carbon dioxide to build up plant tissues. These tissues become wood that mankind has used, to meet its needs, literally from the cradle to the grave. Million of babies are put to deep slumber in wooden rockers. Beautifully carved pieces of furniture and elegant homes have made for gracious living. And wooden caskets provide dignified transport to everyone’s last trip on earth.
For more than fifty years now, the extensive use of plastics appears to have considerably replaced wood in our daily lives. But as plastic bags and broken furniture and toys begin to clog rivers and sewage systems, with no hope of biodegrade in the next fifty years, authorities have began to encourage the use of organic materials that will more quickly recycle in nature. Even with the use of plastics in construction and consumer products, wood continues to be a major component of buildings and a tool of creature comfort and convenience. Nature has ensured that the human species will survive with a sustained supply of basic food and wood from the photosynthetic (sun-induced) process.
Scientists have predicted that towards the end of this century, key minerals (such as oil and iron ore) will be more difficult to extract. Human technology will then have to focus on creating wood-based products, which, though not direct substitutes, could lessen heavy dependence on these minerals. When the earth’s reserves become very costly to extract, we have to turn to renewable wood resource to help meet our needs. For instance, when fossil fuel becomes less available, methanol (wood alcohol) can be used in motor vehicles. And for long-haul transport, we can revert back to good, old-fashion railway trains, that run on steam from water boiled by burning fuelwood.
The world’s tropical forests have been under intense pressure from advancing and rapidly growing populations. The push for land to settle and till for food, is such a strong force that threatens to compress the lungs of the earth. The Amazon jungles are the last remaining vast track of forest cover, and they are under constant pressure from all sides to be cleared for agriculture and other non-forest uses. Just as valuable are the tropical virgin areas of Indonesia, Papua New Guinea and Borneo, which continue to suffer from slash-and-burn tillers who hardly make provision to restore forests. In the decades to come, the drive of the world’s rural population to clear land for food will lead to a massive retreat of natural forests to pint-sized wildlands and watersheds.
Poorly implemented policies on land use and exploitation of the natural timber stands, have only led to the total annihilation of vast tracks of virgin areas. The sensible concept of selective logging for Philippine Dipterocarp forests never really meant anything to the privileged few, who were given the licenses to extract the timber. The onslaught of well-equipped loggers, who first cut the large timber, and then followed by the slash-and-burn settlers, who finish off whatever vegetation was left after heavy logging, ensured that no trees were left in those areas. This lethal “teamwork” eventually resulted in extensively eroded landscape dominated by hardy grass (e.g. cogon or Imperata cylindrica) that burns in the heat of every summer and effectively prevented other plants from bringing back a more diverse green cover.
The “Greenest” Investment
Many forestry experts agree that the only effective solution to slowing down decimation of natural forests, and still meet the world’s wood demand, is the massive establishment of forest plantations, to serve: (a) as buffer zones to stem the tide of the advancing armies of hungry tillers; and to (b) meet the increasing wood demand; (c) provide protection against soil erosion and consequent siltation of rivers; (d) provide employment to the rural population; (e) restore the wildlife population; (f) keep a wholesome micro-climate in surrounding communities; and (g) maintain stability of watersheds. In the past six decades, the country has had extensive experience in developing plantation forests. But their systematic expansion in many tropical countries, where such opportunities exist, have been hampered by restrictive laws and rules. Despite fiscal and other incentives, very few entrepreneurs have gone into massive tree plantation ventures.
In a free enterprise economy, private sector involvement is a key to the successful restoration of timber resources of a country (or countries) where there was excessive exploitation of forests. The creation of well-managed forest plantations, will require massive capital investments, and have relatively long gestation periods (8-15 years for many timber species). The years needed for the trees to mature to harvestable sizes, expose the investment to risks of fire, wind, disease, and human encroachments. But, there are ways to mitigate the impact of these risks.
The aim for profit is at the core of any human economic activity. There is, therefore, no greater stimulus to achieving the goals of a project or a program, than the prospect of added value or making a profit. Diversification of an investment portfolio is a common strategy to spread risk, adopted by firms or people who want to see their cash reserves grow (e.g. insurance, pre-need firms, pension funds). People who strive to be richer invest in diverse enterprises, rather than stash their cash in treasure chests or under mattresses. Buying both blue chips (slow but sure growth in value) and fast-moving mining/oil stocks, is a common combination. Similarly, funds could be used in productive enterprises, such that a portion goes to short-gestation crops (e.g. vegetables, sugar, corn, biofuels) and longer-gestation crops (e.g. coffee, cocoa, mango, rubber, and durian orchards), while another portion could be devoted to fast-growing timber trees. No sane investor puts all his money in one basket. He has a better chance of getting ahead in a diversified portfolio, specially if he can correctly and carefully assess his opportunity loss.
No investment is risk-free. The probability of quick windfall gains, is usually coupled with the probability of heavy losses, such as in speculative stocks and Ponzi schemes (scams?), which promise atrociously high earnings. On the other hand, productive land-based enterprises are subject to weather extremes, pest, diseases, and steep price falls. When agricultural crops do not suffer from adverse weather or pest and disease and harvest is bountiful, they could face a steep fall in prices. In the case of mature timber, when faced by unfavorable prices, cutting could be postponed for a relatively longer time than crops.
There are pundits who can give “expert” predictions in the stock market, and provide good guidance to investors on where to bet their money. There are also many specialists in productive enterprises to teach how to profitably raise commercial crops. But specialists to advise on how money can be made in longer-gestation crops, such as timber, are rare. This may be due to the fact that it is very difficult to convince investors that a timber venture could be enormously profitable. The long wait (at least eight years) to generate revenue from trees, could just turn off conventional and very risk-averse investors. A concrete demonstration, no less, could be the only way to convince these investors on the viability of tree plantations.
Evaluating Opportunities
There are investors who bravely face the risks, take steps to reduce them, and are prepared to steadily and patiently await the positive revenue flow. Oil and mining ventures are also risky and have many years of gestation periods. But trees are above-ground and have easily measurable volumes. Oil and minerals are underneath the earth’s surface, and their quantities could be roughly assessed only through seismographic data.
In nature, all living things go through varying rates of accelerating growth that eventually tapers off into maturity and decay. The process is evident in tree plantations. In countries where plantations are well-developed (e.g. New Zealand, USA, Chile), the decision to harvest the trees could be (ideally) based on financial maturity. The concept dictates that, if additional volume and value to be gained by postponing the cutting for, say, a year, will be lower that the cost of waiting, then it is time to cut and sell the timber.
In the case of fast-growing timber species, growth accelerates in early years and full maturity could be achieve in 12-15 years. There was evidence of heart rot when two commonly grown species (i.e. Gmelina arborea, Acacia mangium) reach these ages. Without the benefit of a conclusive study on the financial maturity of fast-growing trees, the expected diameters at breast height (DBHs), heights of usable trunks attained, and volume per hectare, are deemed adequate to evaluate the viability of a tree plantation. Experience in planting the fast-growing timber species, has shown that at an early age of 8-10 years they can attain DBHs, usable heights, and volumes per hectare, that could generate attractive returns to the investors.
Evaluating business opportunities is made easier by looking hard at the prospect, and level of profits to be made, and by examining risk-mitigating measures that could be implemented. In the case of a timber venture, wherein the gestation period is longer that many others, managing risk-reduction efforts, is crucial to profitability. The impact of strong wind and fire can be mitigated by windbreaks and firelines. Diseases and pests can be avoided by planting tree species that have proven to resist such scourge. Human encroachments can be prevented by alert guards. But, of course, no mitigation measure will work against a true force majeure (act of God) that can totally annihilate any land-based project.
At current prices, money put into timber trees is expected to have a return of at least eight to ten times the invested funds. Even with the numerous risks facing such a project, the venture could be attractive to savvy investors. But venture capital for timber plantations has been very hard to come by, despite the prospect of very high returns on investment, assurances that risks can be mitigated, and the social and environmental benefits. Funds may come from firms which have plenty of cash and need to diversify their investments. Funds may also come from investors who are already involved in forest plantations in the temperate countries, and have recognized that tropical trees grow and mature very much faster than temperate ones. They are quick to see that enormous profit can be had with such fast growth.
In the last five decades, the Philippine Government has carried out extensive planting of at least 25 timber species in various sites. A site-species matching study to ensure suitability of certain species in given locality and in each of the country’s four climatic zones, was conducted, and has come up with a list of recommended species for each zone. Following the recommendation will minimize the mismatch of certain species with the soil and moisture conditions in the planting sites. Through years of experience in planting, it has been shown that fast-growing sawtimber trees (e.g. Gmelina and Acacia spp.) could be harvestable in 10-12 years. In good sites, Falcata (Paraserianthis falcataria) trees for pulpwood or plywood core can be harvested in 6-8 years. These species can yield 180-220 cubic meters per hectare of useful timber.
When trees attain the harvestable timber volume in 8-12 years, the internal rates of return (IRR) of the plantation ventures could range from 25% – 30%. These rates would obviously be acceptable, and even attractive, to a lot of investors. If a venture is able to avail of superior planting stock produced through a cloning technique, the volume growth could at least double (400 cubic meters per hectare) in a shorter maturity period (1-2 years less). The plantation establishment cost could increase by 15% – 20%. But the volume growth and shorter maturity period, plus superior form of the trees, will more than compensate for the increased cost. It is estimated that IRRs of the venture could be much higher than those of conventional plantings today.
The nascent cloning technique to enable raising of superior (in form and volume growth) trees, offers hope that more capital can be attracted to timber plantation ventures. The increased attractiveness of this type of investment and its favorable environmental impact, offers a good prospect of restoring the country’s timber wealth, and reviving the moribund wood-based industry. The over-all economic impact of restoring the timber industry will be enormous, and will surely merit the attention of policy-makers.
Corporate, Social Responsibility
Many land-based crops to which investments can be made, have only employment and profit as main benefits. Intensive cultivation of sugar and corn, wherein tons of inorganic fertilizer are used, will even harm the soil and pollute the air with nitrous oxide. But tree plantations have stronger social and environmental benefits that responsible investors should consider. Flower cultivation produces a fragrant air that all passersby enjoy. Poppy, cocaine and marijuana plantings support addicts of the world. Tree plantations anchor on precious topsoil that holds rainwater for regulated release downstream. As they grow, the trees absorb much more carbon from the atmosphere than most other vegetation, and release oxygen in the process. Birds and other wildlife flourish among trees, much more than in commercial croplands (e.g. coconut, sugar).
Corporate social responsibility (CSR) is a buzz word in the corporate world. It is not a commodity to be traded, but a term used to measure the level of awareness/involvement that a corporate citizen has, to help mitigate a social ill (e.g. poverty, sanitation, environmental degradation, poor health services, etc.) in the communities where it is doing business. For a firm to be considered doing its CSR, it can be a member of the Philippine Business for Social Progress (PBSP), whereby it pledges a portion of its net profit for use in many social projects of the organization.
A firm can also go it alone, and do a project that benefits the community, but which will also have long-term benefits to its own viability. An example of this is the reforestation and forest protection project in the La Mesa Dam watershed area. This watershed provides water to the dam that supplies the need of more than 10 million Metro Manila residents. Funds for the project could come from the profits of the firm that owns the water supply franchise. The public perceives the reforestation project to be very commendable and is a shining example of CSR. But whether what the firm does, is adequate to ensure that water continues to flow to the dam over the long term, is another matter. The main watershed includes the upper reaches of Umiray River Basin, a virgin forest area of the eastern Sierra Madre range which has been in constant threat from settlers and illegal loggers.
PBSP has been around for more than 30 years, and has probably amassed enough funds to carry out numerous projects that reflect a good CSR. If its resources will allow, it should perhaps consider a soil-erosion control project that will prevent degradation of the hillsides. Planting timber trees on the degraded hills and watersheds will mitigate soil erosion and reduce siltation of rivers. When the hillsides become erosion-free, the benefits to the rural poor and farmers downstream, become evident. Such an accomplishment will speak eloquently of PBSP’s commitment to doing a true CSR project.
Climate Change is a Global Concern
Drastic climate change is a problem, not only of one country, but of the entire planet. Scientists have predicted that as earth’s temperature rises, many dire consequences can occur, such as long droughts, massive flooding and accelerated melting of glaciers in both the North and South poles. The average global temperature has risen by more than 1º Celsius, and, slowly but surely, continues to rise. If not mitigated by effective measures, such as control of carbon emission from factories and motor vehicles, the temperature could reach 6º Celsius by the end of this century. This unusual phenomenon will cause a few meters of rise in sea levels, submerge coastal areas, and could displace up to two billion people (about a third of the total population) around the world.
Countries’ authorities, scientists, and communities have accepted the likelihood of unprecedented warming of the earth and its disastrous consequences. Hydrogen-fueled, electric and battery-operated cars are being seriously experimented on, to reduce dependence on fossil fuel, which is a major cause of carbon emission into the atmosphere. Windmills are sprouting in many sites, to generate power to reduce reliance on diesel-fueled generating sets.
A Nobel Prize-winning scientist (Dr. Pachauri, head of the Inter-Governmental Panel on Climate Change, or IPCC) said that one of the best ways to sequester carbon is by growing trees. In many tropical areas of the world, tens of millions of hectares of land lay bare, and in need of forest cover. Recent studies in UPLB revealed that fast-growing timber trees could sequester as much as 20 tons of carbon per hectare per year. There is, in the country, an estimated six million hectares of public land that need honest-to-goodness reforestation. If only a million hectares of this land is fully planted to trees, they will reduce atmospheric carbon by 20 million tons per year. Even if these trees mature for harvest in, say, eight years, the stump and branches will remain as sequestered carbon, as long as they are not burned. The sawn timber, when used as furniture or construction material, will keep the carbon in its tissues. Coppice growth from the stumps will be vigorous and, therefore, will be more capable of sequestering carbon from the atmosphere.
It was reported that, during the 20-year period of 1976-1996, Philippine Government’s reforestation efforts have planted 420,000 hectares of various species in the hillsides. There should then be trees already absorbing about 8.4 million tons of carbon every year. If the stands are fairly intact, there is now an estimated growing stock of about 12 million cubic meters of harvestable timber. Many of the 20-30-year-old trees could now be cut to meet the ever-increasing local demand for timber, and will substantially reduce wood imports (now reaching about $200 million per year). But where are these extensive reforested areas?
The Age of Wood
Sound forestry, when implemented through tree plantations, will serve both the profit motive and social and environmental values. Other positive aspects are that: (a) forest need not be planted in prime food crop land, but in degraded hilly areas; and (b) once established, trees and forests will prevent flash floods and protect the integrity of watersheds and precious topsoil. In the Philippines, and in the rest of the tropical world, there are enough uplands, as well as expertise, to develop forests that will have very substantial favorable impact on t the socio-economic conditions of millions of people.
An effective investment strategy that will bring together a good combination of the basic factors of production (land, labor, capital, technology, management) is needed. Supported by correct and effectively implemented policies, private entrepreneurs will be able to do the task of strategic thinking. A forward-looking Government should harness the talents, expertise, and resources of the private sector to achieve key national development goals of increased rural employment (hence, poverty reduction) and a flourishing forest-based industry. Given the task, and enough freedom to implement an effective strategy, the private sector will also have the opportunity to show how strong is its sense of responsibility as corporate citizens.
Perceptive pioneer entrepreneurs know that starting a timber plantation is like casting a line in murky waters. The fish may not see the bait at all. But in one to two years of toil, when the initial plantings, especially of superior (cloned) trees, show good potentials for rapid growth, the investors will be encouraged to plant more areas. By the time of first harvest of mature trees, the cycle of planting and harvesting would have started, and the enterprise becomes a going concern. By then, investors, who had earlier grave doubts, may want to jump into the gravy train of timber plantation ventures.
To achieve major goals of national economic development, policies should be re-directed towards making full use of the bountiful natural endowment–land resources. Countries that have judiciously and deliberately used their land resources (e.g. Malaysia, Netherlands) have impressive Gross Domestic Products, which are much higher than those of many other countries. A determined Government that is honestly and seriously concerned with a country’s development, can encourage the successful implementation of a strategy that will use massive fund and land resources to restore the timber wealth, and which will also truly contribute to mitigating the impact of a drastic climatic change. There is no shortage of people in the private sector who can do this crucial task.
The timber harvesting research carried out in Eastern Mindanao, through funds provided by the International Timber Trade Organization (ITTO), has conclusively shown that benefits can continuously flow from natural tropical forests, without extensive damage to the environment. But the fact and knowledge have come only when most of the Philippine forests were almost completely decimated due to grossly improper use. Now, as in the past, people still see that harvesting the mature timber in a natural forest, and even in plantations, is naked exploitation that only exacerbates degradation of the forestlands.
The cloning technology alone promises to revolutionize the way people look at the forest business, based on tree plantations. In the 1960s to the 1980s, logging the natural forests was a key industry that made a lucky and influential few enormously wealthy. The surge in the concern for the deteriorating human environment in the 1980s, has badly stigmatized this activity, and for that matter also cutting mature planted trees, as directly harmful activities. Despite the successful research (ITTO’s) that showed careful extraction of mature Dipterocarp from the natural forests, hand-in-hand with preventing encroachers, can keep the forest forever productive, the public is still squarely against all forms of timber harvest. The distorted view is a backlash from the massive destruction of virgin forests, in those decades when the timber industry had to meet the needs of countries rising from the ravages of World War II. It has become an uphill fight for foresters to convince people that sensible forest management can still revive forest-based industries that have provided rural jobs to millions of people in the hinterlands. Showing good results of tree cloning on the ground, will open the public eyes to the great opportunity to recoup the lost forest wealth.
As progress marches on in this century, the competition for minerals and other resources becomes fiercer and may even lead to war. In a few more decades, new technologies would have been developed to more effectively use wind, ocean, and sun, to generate energy for human comfort. But still the less complicated way to keep such comfort, is to revert to intense and wise use of land resources to produce renewable goods. In addition to more efficient use of the land to produce food, it should also produce wood to meet other basic human needs.
In past centuries, before fossil fuel became an energy source, and steel as a basic construction material, wood was the main source of both energy and construction. In those centuries, there was an Age of Wood, when humans relied much on forests and trees for their energy and construction needs. In the not-so-distant future, when much of the fossil fuel and iron ore would have become too costly to extract from the bowels of the earth, we will again turn to these trees and forests, to survive. Forward-looking investors could start developing strategies to use land resources for sustained timber production. Demand for wood-based products will rise, as current utilization technologies improve. More people will need more wood. The Age of Wood will soon be back!
Oscar A. Gendrano retired from Asian Development Bank as a Forestry
Specialist. He belongs to AIM’s MBM Class 1974. He authored a book
entitled: OSCAR: A MAN OF THE FOREST; Memoirs of a Forester, which was
launched at the Philippine Consulate in New York City, USA in May 2008. His
email address is ocagendrano@yahoo.com.
Illustration by Brian Vallesteros
The Management Profession Being Put To Doubt
In his new book “The Devoicing of Society: Why We Don’t Talk to Each Other Anymore” communications expert John L. Locke warns that if people are not careful, this “devoicing” may cause Westerners and Easterners to become more isolated, distrustful and unhappy. Good old-fashioned conversation has enormous social and psychological benefits, but certain attitudes and technologies are eliminating the leisurely, face-to-face chat, even among family and friends.
After an absence of over a decade, I am officially back at AIM. My return does not really resemble the Rip Van Winkle case of a man falling under a spell and waking up 20 years later to find himself in a home he no longer recognizes, in a world he can barely comprehend.
