Trees and forests are an important natural element that helps absorb or sequester CO2 from the environment, thus combating global climate change. Recent studies conducted throughout South Asia have found that teak trees are amongst the most carbon absorbent species in the world. A teak tree with an average circumference of 20 centimeters can absorb up to 370.000 metric tons of CO2 from the atmosphere throughout its lifetime. Given teak’s high economic value and positive environmental impact, the Indian government has been promoting the planting and preservation of teak forests, particularly in areas of the country with high industrial output. This economic and environmental model is starting to gain popularity in Asia as a way to ensure long-term economic gains through teak assets as well as contribute to lowering the effect of greenhouse gases (CO2). Other regions of the world, particularly Latin America and Africa, could consider the teak plantation model and adapt it to their countries’ particular necessities.
The Environment and Teak Markets in Latin America
In many Asian countries, it is easy for local and state governments to implement teak forestry policies because they are the owners of large forest operations, which they manage for additional employment and income. However, government ownership of teak and lumber operations makes it harder for foreign investors to inject capital into these projects. In the case of Latin America, the benefit for international investors is that most teak operations are in private hands. Furthermore, many Latin American governments give generous tax and residency benefits to foreign investors operating within their countries.
As global demand rises, it is estimated that, by 2050, there will be a supply shortage for high quality hardwoods that will require an additional 10 million hectares of forestry operations. Therefore, substantial investments in teak are required in order to take advantage of this market opening and fill the supply gap. Currently, Latin America is the most promising region for safe and sustainable investment in teak industry operations, given the weak enforcement of legislation defending against unchecked deforestation in South Asia and Africa. As of today, Latin America has approximately 100.000 hectares of land devoted to teak forestry and the region as a whole adds approximately 10.000 hectares annually. If this rate of growth continues, Latin America will reach 300.000 hectares of teak forestry by 2040 and be able to rival Asia as the world’s leading teak supplier with an average output of 3 million cubic meters annually. Similarly, Latin America has the necessary space and climate for forestry operations to grow and prosper.
As a financial asset, teak has seen an annual growth of approximately 5.0% throughout the last decade. Simultaneously, teak is a long-term investment that takes years, even decades, to yield the bulk of its returns as investors watch their assets grow, quite literally. If you are an engaged investor, interested in the environment and medium to long-term returns, the most popular and promising destinations for investing in sustainable teak forestry operations in Latin America are Colombia, Panama, Costa Rica, and Brazil.