Why Latin America?
The Timber Group believes that within certain regions of Latin America, the high intrinsic growth rates, available land, advanced technology, and well-trained work force offer opportunities to achieve nominal returns on investment in excess of 14-18% p.a. We also believe that there are significant opportunities to enter ahead of the wave of new investment likely to arrive in Latin America over the coming decade - investment which should drive timberland appreciation, and create attractive exit opportunities for early investors.
Timberland productivity
Decades of investment in forest technology and genetics, along with naturally favorable soils and climates, have allowed Latin America to develop the worlds' most productive timberlands and most technologically advanced timber industry. Year-on-year yield improvements continue, with analysts projecting a 20% increase in average Brazilian eucalyptus productivity by 2020.
Indicative productivity of Eucalyptus spp. in various regions (m3 ha-1 yr-1). Sources: ABRAF, Cubbage 2007, Sedjo 1999, FAO 2001, TTG analysis.
Land availability
Latin America and Africa are the only two regions in the world in which significant areas of land are available for the expansion of commercial timber plantations. This high land availability, along with the high productivity in many regions of Latin America, make land relatively inexpensive on a cost-per-unit-productivity basis.
Global area available for agriculture
Low costs of production
Certain geographies in Latin America offer not only higher biological productivity and lower land costs, but also the world's most modern and efficient technology. For example, the last pulp mill to be built in the USA opened in 1989. The last pulp mill to be built in Brazil opened in 2009, while an additional 5 new mills and mill expansions have been announced or are underway. Together, these factors have established Latin America in general, and Brazil in particular, as the world's low-cost pulp producer.
Indicative pulp production costs in the principal pulp production regions. Note: Pulpwood costs in the north western US and Canada are depressed because of the large volume of salvage wood from beetle-killed forests.
Domestic demand
Certain countries within Latin America have very strong domestic markets for forest products. For example, Brazil is the world's fourth-largest forest products producer. But, more than 75% of all Brazilian forest products are consumed domestically. Only pulp is principally an export commodity; the domestic demand for many forest product classes, such as engineered panels, exceeds supply, creating opportunities to face both domestic and export markets.
