For more details on economic issues see FAO (2000) and Keogh (1996).
For valuable hardwoods the competitive advantage results from having high growth rates without detrimental effects to wood quality, high profits and a large market share. Key factors are available land at reasonable costs, high plantation yields, well-developed plantation practices, a skilled labour force, strong research backing, the existence of a viable market, and a strong supporting infrastructure to ensure cost-effective delivery to markets.
To encourage valuable hardwood species for the niche or speciality markets they should be given separate attention from commodity species. The economic conditions necessary to develop valuable hardwood plantations, with a view of offsetting timber demand pressures on the natural forests, include:
a) Return on Investment. This is dependent on discount rate, capital costs (including land value), production costs, length of investment, plantation yield, future price levels, and the effect of taxes and/or incentives.Rotation lengths need to be relatively long so that these slow growing can produce large valuable logs. Financial resources are therefore locked up without returns over long periods. It is therefore difficult for private finance, especially the local investors in tropical countries, to be wooed into such ventures without the necessary incentives that will ensure acceptable profitability. Brown (FAO 2000) states that “In many cases incentives have provided an important stimulus to planting, and may have been a more important driver than expectations of future prices and earnings”.
Growth rates and transport costs are often the critical factors in plantation profitability. Acceptable profitability, therefore, results from growing high-quality genetic material on fertile sites with good silviculture and having the plantation close to processing facilities as possible. Using the best methods of management is essential. The production of value-added items, instead of exporting unprocessed logs, may further enhance returns.
An assured adequate future market price for the plantation wood at harvesting is necessary to sustain investor interest in replanting, as well as encourage new growers.
Plantation management should ensure that risk of pests, diseases and fire are minimised or prevented. Similarly, it is important that these valuable plantations are insured against such intangibles as fire and windstorms.
b) Government Policy. The appropriate role of government in plantation forestry remains an issue of debate, regardless of the level of public ownership. The various responsibilities of government have included fostering an environment conducive to investment in tree growing; the regulation of industry and land use; environment and other community values (Kanowski 1997). The establishment of a secure and stable policy (e.g. with respect to land tenure/tree tenure) and financial environments for plantation investment, is essential for the sustenance of investor confidence.
c) The capture and retention of niche markets. Due to public perception of tropical deforestation tropical hardwoods have lost some of their appeal in some environmentally sensitive markets. Therefore, it is important that plantations are economically viable, environmentally appropriate, and socially desirable. Land tenure aspects - both legal and customary - often need to be considered. Environmental or 'green' certification may also assist in maintaining and developing markets.
It is essential that high-grade hardwood plantations are established on a relatively large scale and planned for a continual supply of similar quality timber. There should also be the possibility for producing some large dimension material, if the market requires this, as timber value is usually related to log size.
Decorative timbers are also subject to swings in consumer fashion. Choice of versatile species is important to counter this effect.
There are considerable barriers to expanding the market share for luxury or valuable hardwoods. Plantation grown teak may be exception to this rule (FAO 2000). Further, many supply characteristics for valuable hardwoods are not widely understood, so market research and development is required to capture and hold markets. The maintenance of high quality standards from production to marketing is essential.
Experience in Brazil and elsewhere have indicated that plantation establishment efforts should have direct links to an existing or planned end-user.
