Forest Cash Flows
Determining forest cash flows is fundamental in assessing the quality of physical or financial forest assets. Success depends on systematic gathering and interpretation of all relevant financial, environmental, social and governance data related to underlying income generating activities.
In the majority of cases timber production and land appreciation are the key value drivers within the forest business model.
- Biological growth and in-growth (65-75%)
- Changes in timber product prices (25-35%)
- Changes in land prices (2-5%)
The UN Food and Agriculture Organisation estimates that production of industrial round wood needs to increase by more than 30% over the next 20 years to keep pace with global demand for processed wood products. At the same time renewable energy policies worldwide are driving up demand for wood biomass; future prospects include production of bio-fuel (diesel and ethanol) and bio-chemicals for wood.
However many forests also have potential to deliver a range of additional cash flows including local processing, non-timber product harvesting, ecosystem services and amenity services.
Implementation of this ‘multi-revenue’ forest business models lies at the heart of successful sustainable management in natural forests, and in unlocking alternative income for forest restoration, and reforestation and afforestation activities.
Examples of non-timber forest cash flow include:-
- Carbon sequestration
- Biodiversity protection
- Watershed management
- Nuts
- Honey
- Ecotourism
- Hunting and fishing
- Cultural
The scale, timing and quality of forest cash flows determines underlying potential for a range of stuctured finance solutions. Forest entrepreneurs, communities and conservation groups need new routes to market. Major buyers need reliable suppliers committed to sustainable production practices. Enabling such links enables forest cash flow to be built from the ground up but requires excellent local knowledge, technical skill, strong contacts and plenty of patience.
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- Developers and fund managers (request)
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