Forestry investments are one of the main types of agribusiness schemes on the market today. It has received quite a lot of attention due to being linked to sustainable practices and ample benefits, such as providing community support, helping the environment, and of course, providing an appealing return to investors. Are you wondering what a forestry investment scheme is? No worries. We made sure to get you quickly caught up.
What are forestry products?
As one of the main types of agribusiness products, forestry products are used for direct consumption or commercially, like paper, lumber or livestock food. The dominant forest product is wood, which has many uses. It can be burned as firewood, or used as a construction material. It can also be chopped up into wood pulp and used to create paper. It’s important to note that another category in agribusiness is non-timber forestry products (NTFPs), which are products grown in forests but obviously aren’t wood.
How can you invest in forestry?
Investing in forestry assets isn’t anything new. Timber has a diminishing supply while demand continues to run high. The demand for timber can be linked to global population and economic growth, but native forests are decreasing around the world or are increasingly becoming protected. Sustainably managed forestry investment schemes are an ideal solution to filling in high demand while maintaining a responsible approach to environmental, social and governance (ESG) factors. The gap in the supply and demand will give companies governing forestry ownership pricing power in the future, and it can be viewed as an appealing investment for investors.
There are many ways to invest in forestry these days. Some of the most notable ways include:
- Forest Shares
This is a security that securities a share in a stock corporation whose capital is invested in forestry property or processing. The value of forestry shares fluctuates according to the stock market valuation multiplied by the number of shares. Forestry shares listed on the stock exchange can be traded quite easily. Most forestry-related share companies are affected by strong economic fluctuations or timber market prices. - Forest Funds
Forestry funds are common as direct investments or closed-end funds. Direct investments involve an investor directly investing in one or more trees in a certain location. The forest is managed and cultivated by a responsible company that has the actual forestry ownership and offers the forestry scheme. Closed-end forestry funds are more general, where an investor invests money into the company that in exchange acquires land to grow trees. - Direct Forestry Investment
Direct forestry investments in products such as precious trees aren’t as heavily affected by market fluctuations. Harvesting can be postponed until market prices are changed for the better, all while the tree continues to grow in size and return price. Fluctuations in precious wood is much lower than timber used for pulp production. A benefit for direct forestry investments is that it can be various tax-exemptions applied. Be sure to check the rules and regulations in your given location though to see what tax benefits apply to you.
What Is Forestry Ownership?
The FAO Forest Resources Assessment defines forest ownership as “the legal right to freely and exclusively use, control, transfer, or otherwise benefit from a forest. Ownership can be acquired through transfers such as sales, donations, and inheritance.”
The Food and Agriculture Organisation (FAO) of the United Nations regularly publishes brochures and information about forest products. Annually, the FAO publishes a yearbook with country overviews and statistics on forestry around the world. It also publishes data on the pulp and paper industry. It is a very useful source of information when it comes to forestry products and forestry ownership.
Often investments are made to responsible companies that have actual forestry ownership and act on the investor’s behalf when it comes to cultivating the trees. The land that a forestry company uses might be directly owned or leased. It’s good to know if any debt is owed on the land that the foresty company has in case you are interested in making an investment. A company that has no debt when it comes to land ownership is quite appealing.
What Makes Forestry Products an Appealing Investment?
There are various benefits to making an investment in forestry, especially sustainable forestry investment schemes. Companies that take a sustainable approach and consider ESG factors already make a big impact on local communities and those involved in maintaining the forests. As forests are on the decline today, planting new trees is also helping the environment as sustainable forestry is linked to reducing carbon emissions and helping conserve natural ecosystems.
Another reason why forestry is an appealing investment is that global demand for timber remains high. The FAO predicts the global demand for wood products is predicted to quadruple from 2012 to 2050, therefore surpassing supply. Also, investing in forestry is a great way to create diversification in your investments. Are you interested in finding out more about how investing in forestry can be beneficial? Check out our blog on Five Benefits of Investing in Sustainable Forestry.
Always asses the risks involved when it comes to your next investment. This brief overview of forestry investment schemes gives you a good start in finding out if investing in forestry is right for you.
Are you interested in finding out about other agribusiness products that are worth an investment? Read our blog Five Agribusiness Products Worth an Investment to find out more.
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