5 Priorities for Panama's new Environment Ministry

Last week Panamanian President Juan Carlos Varela signed into the law the existence of the Environment Ministry, formerly the National Environment Authority (ANAM). This move signals that environmental issues will receive more consideration as Panama's political agenda develops.

Mirei Endara, the head of the new ministry, outlined five priority areas in a recent interview:

1. Changing the Ministry's procedures to be more efficient and transparent, looking specifically at technology investments. This would include an analysis of the Ministry's environmental impact study framework to identify areas of improvement.

2. Stimulating eco-tourism in protected areas. Tourism in general has been growing in Panama over the past few years, but this has contributed to over-development in sensitive environmental areas.

3. The Alliance to Reforest 1 million hectares of trees over the next 20 years. Announced several months ago, this initiative could mean more incentives for smallholder farmers to plant trees on their deforested land.

4. Addressing climate change by promoting low-carbon development.

5. Water, including better management of watersheds, increasing access to clean water in rural areas, and better information and monitoring systems. This would start with a baseline inventory of all the water systems in Panama to understand their quality and integrity, though it's not certain that would extend all the way out into the types of rural villages where we work.

We'll be watching and reporting out on these items as we see new developments.

Initial Bird Counts in Plantations

Conservación Panama, a U.S./Panamanian conservation organization that engages local communities to conserve natural resources, recently visited a few of our forestry projects in Arimae.

Their purpose was to do a preliminary assessment of bird populations in our plantations, with the eventual goal of understanding if mixed species timber plantations could serve as suitable habitat for birds to thrive.

While more data is needed to determine the potential of timber plantations to serve as bird habitat, the variety of birds and their counts in Arimae is an encouraging sign. We look forward to working with Conservacion Panama on future site assessments. 

3 ways to recognize a timber investment scam

Loading logs from the Arimae Community Forestry project

Loading logs from the Arimae Community Forestry project

There are a few things to watch out for when evaluating a direct timber investment.

Last week we read the news that Brazilian-based Global Forestry Investments was exposed for allegedly defrauding investors. 

The signs of fraud are evident: the promise of a "guaranteed" payout of 10% annually, with potential returns moving towards 20% at the later end of the plantation life cycle.

This type of scam isn't new. We've seen other operations like Tropical American Tree Farms (TAFT) take investors for a ride, and in the process damage the reputation for all timber investments in Latin America.

While these timber investment companies are clearly in the wrong, investors also need to do their homework before investing. Here are a few things to look out for:

1. A high initial investment amount

This was the case Global Forestry Investments. A £5,000 investment (around $7,500) got you a tenth of a hectare, or 110 trees. That means a full hectare would cost you $75,000, which is 5x or more what it should cost--and you’re not even getting land as part of the deal. This suggests that there were a significant amount of “marketing” and other administrative expenses that were baked into the cost, making it nearly impossible to generate such a high return.

2. Timber pricing projections based on timber from primary forests

TAFT projected their teak values based on primary forest teak, fetching $2,000/m3. The latest ITTO report shows teak log prices from Costa Rica (where the investment was based) ranging between $414-840. Costa Rica’s Oficina Nacional Forestal also has domestic pricing information for a number of species; something our Panamanian forestry industry could really use.

3. Inflated projections for timber pricing growth

TAFT also projected annual timber price increases of 6%, based on a cherry picked time range. Wood markets fluctuate, so you need to understand what the long term trends are. It’s also worth investigating what kind of wood product the forestry company plans to sell (raw logs, blocks, sawn wood) and if they plan to sell it domestically or export.

If you note any of these in the investment you're looking at, be on guard. They probably won't achieve their targeted returns and, at the worst you might lose your shirt.

What's reasonable?

Returns of 5-10% from timber are a reasonable expectation (from a complete timber cycle), especially for new operations (scale is important), and when land is not included as part of the investment. Any investment promoter offering a higher IRR should have agriculture revenue supplementing the project, or have the ability to repackage early timber plantation and resell to a new investor, providing early investors liquidity.

There will always be scams, in the timber investment business and beyond. As we’ve said before, a good rule of thumb is that if an investment seems too good to be true, then it probably is.

We hope to bring attention of the issue and help those interested in this important space to do their due diligence. If you have any experience with timber investment scams, or any questions, comment below and we’ll reply.

Costa Rican officials also battling cocobolo logging

An official points out heartwood of an illegally felled cocobolo tree. Photo courtesy of the Diario Extra.

An official points out heartwood of an illegally felled cocobolo tree. Photo courtesy of the Diario Extra.

In Panama, cocobolo fever (el fiebre de cocobolo) is rising, as the dry season moves into its second month. But it's not limited to Panama. In Costa Rica, officials are battling illegal harvesting of the precious wood, facing a "mafia" that is becoming ever more sophisticated in how they smuggle the wood to market. Here's the full story (Spanish).

According to the latest International Tropical Timber Organization report, a cubic meter of cocobolo (dalbergia retusa), in one port at least, is selling for nearly $8,500. As a point of reference, a cubic meter of teak is going for around $1280.

Cocobolo doesn't tend to develop heartwood until it's more mature, so ours should be safe for now. But come year 20, we might need a small army to fend off opportunistic loggers.

Read more about the cocobolo frenzy in our previous blogs here, here, here, and here.

Photos from January 2015 trip

Last month we took a group of visitors down to Panama to visit our forestry projects, meet local partner communities, and explore the incredible biodiversity in the Darien. Here are some photos from the trip.