Must-Reads For Tropical Forestry Investing

Photo of women sorting native species saplings in Darien PanamaWomen sort native species saplings in Darien PanamaTwo recently published reports examine the roles of private capital in forestry, and increasing investment flows to locally controlled forestry.  

The Guide to Investing in Locally Controlled Forestry, released in December, is the product of a series of meetings called the Growing Forest Partnerships Initiative. The initiative, managed by the Yale School of Forestry’s Forests Dialogue, brought together investors, forest rights-holders, policy makers, and donors for a series of meetings to develop a set of recommendations to increase investment flows into locally controlled forestry. We contributed a case study about the challenges and benefits of building a local focus into our business model.   

In January, The European Tropical Forest Research Network (ETFRN) and Tropenbos released their News 54 publication entitled Good Business: Making Private Investments Work for Tropical Forests. The ETFRN/Tropenbos piece looks more broadly at the role private finance plays in the restoration and sustainable management of tropical forests. With an estimated investment of $15 billion per year, the private sector represents the largest investor in sustainable forestry. We contributed a case study to this report as well, a more in-depth look at how the Equitable Forestry model increase benefits to local communities and reduces investment risk.

All the case studies featured in the Guide to Investing in Locally Controlled Forestry and the ETFRN News 54 are inspiring examples of how organizations are attracting private investment to sustainable forestry models and increasing local control of tropical forests. We consider them must-reads for anyone interested in investing responsibly in forestry, and feel honored to be included.

Canopy Tower Family Invests in Planting Empowerment

Planting Empowerment (/), a socially responsible forestry company working in Panama, announced today that the Canopy Tower Family, a renowned group of eco-lodges, has invested in Planting Empowerment.

Washington, DC (PRWEB) September 27, 2012—Canopy Tower Family, a Panama-based ecotourism company, announced today that they have made a significant investment in Planting Empowerment, a socially responsible forestry company. The investment will enable Planting Empowerment to expand its operations in Panama’s Darien province, where it has been growing tropical hardwoods for the past six years.

“We invested in Planting Empowerment because we support their mission of profitable, socially-responsible forestry”, said Raul Arias de Para, Canopy Tower Family's founder. “They fit our own business well because we both have an interest in managing natural resources more sustainably and conserving virgin forests. They’re reforesting native tree species in some of the most environmentally sensitive areas in Panama, but also keeping the land in the hands of the local indigenous communities and small farmers. It’s more sustainable in the long run.”

Damion Croston, Operations Director for Planting Empowerment, commented “We lease those plots of land from local communities and reforest with mixed tropical hardwoods and crops. Planting Empowerment’s model provides income, replenishes the soil, grows food, and cultivates high value tropical timber.”

As elsewhere in Latin America, Panama’s natural resources are under constant pressure from logging and subsistence agriculture, which rural farmers depend on to feed their families. Cattle ranching also accelerates deforestation, leading to loss of biodiversity, soil erosion and spread of non-native grasses. Unsustainable management of natural resources threatens biodiversity in Panama, and the long term growth prospects for local communities. Farmers either have to commit more resources to getting the same amount of production from their land, or they move on to a new plot of rainforest.

With the Canopy Tower Family investment, Planting Empowerment will expand its operations and profile in Panama as a forestry company with a strong socially-responsible component. “They’re not the largest forestry company in Panama by far” noted Raul Arias de Para, “but they have been growing steadily over the past six years, and I think they’ll continue to grow as more investors recognize that their profit and sustainability goals go hand-in-hand.”            

About Planting Empowerment
Founded in 2006, Planting Empowerment is a private, Washington, DC-based company with forestry operations in Panama. Planting Empowerment works in partnership with rural communities in Panama to grow tropical hardwoods and promote sustainable land use. As the first forestry company in Panama to work through a land lease model, Planting Empowerment has 60 acres of trees under management on land owned by local farmers and communities.

Andrew Parrucci
Marketing Director
Planting Empowerment
Phone: 804.433.8733

Bringing It Together: An Integrated Forestry Company

We’re pleased to announce that Planting Empowerment and all of our trees in the ground are now one consolidated company. Before, we had set up a separate fund, or vintage, for each of the new plantings because it was the standard operating model for direct investment forestry companies in Panama, and effective for getting us off the ground. We began to realize, though, that at our small scale, it was going to be costly to continue this approach. Combining all of our assets under one company will enable us to raise capital more efficiently, reduce our operational costs and increase our positive affect on our community forestry partners and shareholders.

The consolidation should deliver the following benefits:

  • Reduce administrative expenses (only one set of taxes, lawyers’ fees, etc.)
  • Increase our ability to obtain debt financing to finance expansion
  • Increase liquidity options in the medium to long term for our shareholders
  • Increase awareness and understanding of our Equitable Forestry model

We often refer potential investors to the Investing Alternatively website for a description of the different types of forestry investments. Per their description, we are no longer a “Tree Certificate” type of forestry company--where the investors only own the trees on a certain piece(s) of land--but now a “Tropical Timber Company”: investors are shareholders of a fully integrated timber business, and able to benefit not only from the timber produced in the plots, but also any other activity that adds value such as milling, drying, and production of other crops. As we grow, we will continue to increase equity of the business, but also plan to pursue subsidized debt in order to avoid diluting our shareholders’ stakes.

In the end, while the consolidation of the business is important from a financial perspective, it is no less important than the social and environmental returns that it should facilitate for all of our community of shareholders and partners.

Forestry Investment Options

Investors interested in adding alternative investments to their portfolio have a range of options when it comes to forestry investments. Each comes with its own characteristic risks, management style, and type of returns. The website Investing Alternatively does a good job of explaining the types of forestry investments available to retail investors.

Forestry technician stands with a teak tree in PanamaForestry technician stands with a teak tree in PanamaThe site and its descriptions provide an opportunity to describe how our investments are evolving as Planting Empowerment grows. The Forest Investment would be classified as “Tree Certificates” in the site’s definition, i.e. investors own all or a portion of the trees planted in specific timber plantation with a certain “vintage”. While the Tree certificates approach enables smaller investors to access forestry investing, the opportunities tend to be riskier because there is minimal liquidity, meaning the investor can’t exit the investment easily.

Planting Empowerment is in the process of consolidating our funds to operate more like the “Tropical Timber Company” described on the site. This means that we will merge our two original plantations and investors into a single entity. This consolidated company will have a larger capital base and multiple vintages of timber to smooth revenue streams.

We decided to take this route to give our investors more liquidity and regular revenues, and to decrease our administrative expenses from running multiple independent timber funds. Instead of gaining large dividends, investors will benefit from share appreciation and smaller dividends as we reinvest profits into planting more trees and crops.

Over the long term, we believe that operating as a private timber investment company makes sense for our investors and the growth of the company.

As always, before choosing any investment, investors should understand how to choose forestry investments and consider how they fit into their broader financial plans.