Mixed-species reforestation with a triple bottom line: A new model for sustainable forestry in the tropics

November 2011, Business .2020, a magazine on business & biodiversity by Andrew M. Miller CFO, Futuro Forestal

New approaches to plantation forestry beyond monoculture ensure not only the biodiversity of forests, but deliver a sound financial return to investors an sustainable livelihoods to neighboring communities

Traveling east from Panama City along the Pan-American Highway one enters the Darien Province whose forests constitute some of the largest swaths of virgin jungle in Central America, falling within the Tumbes-Chocó-Magdalena biodiversity hotspot designated by Conservation International.1 Several hours from the city, however, the highway is lined not by jungle, but by farmland and ranches. Still farther, the vista gives way to sweeping teak (T. grandis) plantations that extend to the horizon. This area’s natural forests were cleared at a rapid pace over the last half century, the result of timber extraction and slash-and-burn farming. More recently, teak farming has boomed, replaced cattle ranching and become one of the most cultivated hardwoods in the region Native to Southeast Asia and introduced in modern times to the American neotropics, teak farms are alien territory to local wildlife and an Audubon Society study noted only eight bird species flying over a teak plantation within the lapse of an hour.

On the Palmas Bellas farm in Darien, however, a different approach is being employed. A lot of planted yellow cedar (T. Amazonia), a timber native to the region, flanks a gallery forest that follows the contour of a stream traversing the property. On the other side of the waterway, rosewood saplings (D. retusa) have been planted in neat rows. Known as cocobolo in Panama and traded by merchants for over 100 years, its dark-hued wood is one of the most soughtafter in the region. The hardwood species being grown on the farm have been carefully selected for their growth and market value. Woodworkers prize them for their workability, beauty and durability, which is often superior to those of teak. These same qualities have led to widespread depredation. Cocobolo, for example, has been so over-exploited in its natural environment that it is now commonly sold by the pound and is listed as a vulnerable species on the IUCN’s Red List.

Interspersed in the patches of remaining natural forest, the observant visitor at Palmas Bellas will notice the occasional big-leaf mahogany (S. macrophylla). Listed on the CITES Appendix II, mahogany is nearing commercial exhaustion. Mahogany trees on Palmas Bellas are intentionally dispersed by forestry engineers, replicating the species’ natural distribution and staving off infestation by the shoot borer moth that causes timber deformities. Teak is also found across Palmas Bellas but in lesser quantities than on neighboring farms. From above, a landscape mosaic can be traced out with various native species providing connectivity between the stands of natural forest designated as protected areas. Noisy troops of howler monkeys and harpy eagles, the largest raptor in the Americas, are common sights. The same Audubon Society study on a mixed-species Futuro Forestal farm observed 54 bird species within an hour’s time.

Designed and managed by Futuro Forestal, Palmas Bellas applies precision forestry mapping techniques. Teak is allocated to the farm’s prime soils where drainage is adequate and acidity moderate. Native hardwoods, evolved over millennia to the more acidic and clayey soils prevalent in the tropics, are arrayed along less arable strips where teak would grow stunted. Futuro Forestal’s multispecies model offers optimal biological growth while delivering a range of ecosystem services from carbon capture to improved watershed function to fertility enhancement. The company is a specialized timber investment management organization, serving institutional investors seeking exposure to timberland assets. With over ten thousand hectares of fine hardwood plantations under management, the company had brought its unique model to scale long before the concept of triple bottom line entered the mainstream.

Futuro Forestal’s projects provide financial returns through the growth and sustainable harvest of precious woods and underlying land appreciation. Many institutional investors have sought timberland because of its low correlation with financial markets and its quality as an inflation hedge. Pension funds, the largest investors, hold timberland assets totaling billions of dollars. Foundations and endowments like that of Yale University are also major players. Tropical forestry has grown in popularity among such investors due to its higher productivity, exposure to emerging markets, and lower input costs. Timberland continues to be an attractive asset class. According to the Food and Agriculture Organization of the UN, global production of industrial roundwood is expected to grow by more than 40% through 2030.2 This is far less than the projected rise in total wood product demand, which is expected to nearly double. In the tropics, where deforestation rates are highest and most valuable species are extracted from natural forests, the challenge – and opportunity – is greatest.

The gap between supply and demand will have to be met by forest plantations where sustainability practices will become increasingly relevant. Unfortunately, certification has lagged in the tropics where biodiversity is significantly higher than in temperate forests. Tropical forests represent a mere one tenth of total certified areas. Since its inception, Futuro Forestal has made Forest Stewardship Council (FSC) certification a norm. In retrospect, this policy has proven good for business since certification has opened new markets.

Plantation forestry, however, is at the crossroads of an intensifying controversy around global land use. Like any other crop, timber is more productive and therefore more profitable on fertile soils. On the one hand, high-productivity plantations relieve pressure on natural forests and help stem deforestation. On the other, the planet is experiencing unprecedented demand for food and biofuels that has created acute competition for arable land. Innovative agro-forestry systems that satisfy multiple needs are urgently needed.

In rural Nicaragua, where poverty is among the highest in the western hemisphere, partnerships are being developed to address financial, human and environmental needs. On the Valle Menier farm, the site of a certified reforestation project managed by Futuro Forestal, a flock of sheep adapted to the tropics known as Pelibu¨ey can be seen grazing on weeds that sprout up between rows of planted trees. Weed control is one of the most significant costs in tropical plantation forestry. Chemical herbicides and tractors powered by fossil fuels are the conventional methods. The Pelibu¨eys, owned by local shepherds, are a cost-effective and lowimpact alternative. The project was financed by a grant from the German Development Bank to Futuro Forestal’s sister nonprofit, the Community Forest Foundation. The project has been a resounding success and an example of the new thinking in sustainable agro-forestry. The financial investors benefit from cost reductions while local families have achieved improved incomes and diets, strengthening food security in a region where chronic malnutrition is widespread.

A beekeeping project, also managed by the foundation in conjunction with local women entrepreneurs, has been equally successful. The role of bees as pollinators is now understood to be critical to food production. The foundation has trained community entrepreneurs in honey production and basic business skills. Their bees collect wild nectar from the project’s natural forest areas. This has the effect of aligning the interests of both communities and investors around fire prevention and the restoration of natural capital. Community support for the project has reduced country risk for investors. The foundation has adopted a decidedly non-paternalistic approach, preparing entrepreneurs to manage their own businesses from production to marketing. Inputs, such as beehives and young sheep, are provided on credit that must be repaid; funds are reinvested to achieve greater scale.

Futuro Forestal’s model contributes to the achievement of many of the Aichi Biodiversity Targets set forth in the Strategic Plan for Biodiversity 2011-2020 adopted by the tenth Conference of the Parties in Nagoya. Target 5 refers to slowing the loss of natural habitat and forest fragmentation. Sustainable plantation woods, as an alternative to timber extracted from natural forests, and the protection of biological corridors are steps in this direction. Target 7 exhorts sustainable management of forests and farms. Broader acceptance of certification and consumer awareness of the FSC label are imperative. Target 13 aims to protect and restore the genetic diversity of cultivated plants and culturally valuable species. The trend toward agro-industrial monoculture with a handful of species is antagonistic to this goal. Yet far more resources are needed for research and development of lesser-known species, especially in the tropics.

Genetic improvement programs, such as those pioneered by Futuro Forestal, have already yielded advances. Certified plantation supplies of threatened tree species, such as mahogany and rosewood, are woefully lacking, but offer opportunities to the savvy investor. Perhaps most importantly, human and environmental needs must be addressed in tandem, as expressed in Targets 1 and 14. People must be educated and trained in biodiversity protection. Economic and conservation incentives must be aligned. This is a joint task of government, business and civil society. Although no small challenge, forestry models balancing financial, environmental and social bottom lines are beginning to take root.

Download the entire magazine on the CBD website: http://www.cbd.int/doc/newsletters/B-03800.pdf