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Ah, the topic we are all interested in! A good friend pointed out that financial returns suffer from the "sharp pencil" syndrome. It is very easy to create financial models that make it look like you will be richer than Bill Gates in a few years.

In truth, even though our projections show that you could have an internal rate of return (IRR) of around 20%, we will be happy as long as it is in the neighborhood of 10%. Any business that for 25 years steadily produces a net profit of 10% is doing very well.

That being said, before we entered into the business of reforestation, we tested the numbers for 6 months to determine if they were valid and kept coming to the conclusion that reforestation will create wealth under the following conditions.

	The soil and the climate make a huge difference. The quality of the land is incredibly important when you are GROWING things. In our society we think that if we just dump enough fertilizer and pesticide into the ground, everything will be okay. This is not true, and it is also very expensive. People who only eat food that is processed (junk food) end up being sickly, and trees will too. If you are not going to lose in reforestation, you have to work with nature, not against it. Nature is a lot bigger than you, and after a while, you will lose the fight. And 25 years is a long time to have a battle going on.
	The quality of the maintenance is critical. If you plant teak and do nothing, you are liable to have nothing. The trees will grow, but the market for teak is for clear, straight logs. This requires planning, weeding, and pruning, especially for the first 3 years.
	You have to know how to sell your lumber. If you sell your trees as stumpage, you have to know what it is worth and if the logger is to be trusted. One of the local farmers near us entered an agreement with a logger for a certain price for trees. The logger came, cut down the trees and took them, and has never paid a cent. I (Fred) personally am instinctively distrustful of people whose livelihood has been destroying rain forest for personal gain. This is not because I am a dyed-in-the-wool environmentalist, which I am not, but because those who are driven by short-term gain may see that stealing from me is a quick way to make a buck.
	Anyone can sell and make money on full-grown, valuable tropical hardwoods; the challenge in the numbers usually seen is in selling the thinnings. The valuation of a cull, because of its diameter, is not worth as much as a mature tree. The market loves mature trees, because there is more heartwood, and they are easier to harvest and saw into lumber. The wood of the thinnings is valuable, but you have to work at reaping that value. Already, we are in contact with buyers looking for teak thinnings.

One of the areas that will be developing under Tree Information is spreadsheets showing growth forecasts for the different kinds of trees.

Suspicious Claims and Dubious Ideas

All investments are prone to the problem of unscrupulous salesmanship, and tree plantations are no different. You have to do your own research and evaluation to determine if you wish to invest in any reforestation project, including ours. While searching out information on growing trees, we saw more than a few offers that concerned us and heard about others. Some danger signals to watch for:

	If someone is offering to do the work for you, when do they get their money? If they get it up front, why? The significant percentage of the money should be at harvest. Since the amount you make will be dependent on how well they do the job of caring for the trees, they should have to share in the risks.
	How good is the soil? We know of plantations where they planted different species of trees, of which many did not do well at all. When looking at plantations, it is often amazing on what kind of soil they chose to plant. We have seen huge plantations in clay that will require constant fertilizing and pesticides to grow even marginally well. We suspect that the plantation idea was sold to investors with the idea of great profit, and then someone decided to save a lot of money on the land. Bankruptcy will also face these companies if the government decides to stop them from using so much fertilizer and pesticides. Unfortunately, plantations grown in this fashion are not helping the environment, but hurting it.
	Is someone not calculating in all of the costs to produce premium wood but basing profit projections on premium prices? There are lots of costs associated with growing premium wood, especially in the first 3 years. One of the scams is to show returns on premium wood without explaining the challenges in producing wood this good. Since the individual does nothing except plant the seedlings in the ground, the owners of these trees will be lucky to get anything for their investment.
	Are they extrapolating the valuation of other varieties of wood from teak values? Teak is a premium wood with an established market for mature trees. You cannot just extrapolate the growth/pricing models for teak to other varieties of tropical wood. It is a very good idea to grow the other trees, but returns are not expected to be as good for many of them. For example, Spanish Cedar currently goes for about half the price of teak. Also, be aware of people using the price of mature trees as the price for thinnings.
	Are they counting on the government to help? Trusting that the government in any country will make you profitable is risky. You never know when they will run out of money in their program and leave you with a financial model that shows a gaping hole in your income. Always count money received from the government as a windfall, not as something expected. Democracies are concerned about the will of the people, which fluctuates more than the stock market.
	Are they just planting trees, or will they help you sell your trees? You can expect people to come running when you go to sell your trees, but they will try to buy them as cheap as they can. Unless you understand the business, you will need someone to help you determine the valuation of your trees and to find a buyer. If you do not have a large volume of trees, it will probably be hard to find someone who will be willing to help.

Notice: We are not financial advisors, but are willing to share with you our information sources, experiences, and observations. It is up to you to do your own research and evaluation to determine if you wish to invest in any reforestation project.

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