Business idea on timber plantation: A case of Panama

The growing demand on timber has been responded by creating commercial timber plantation. In some countries, timber plantation is old business as the lifecycle of cultivated tree species take for decades to be commercially harvested. In case of paper material crops, the business usually manages around 10 years of tree lifecycle.

Both short and long term life cycle, timber plantation business can be operated in very large area. This post is trying to collect a piece of insight for everyone that interesting to establish the opportunity of timber plantation as their business core activities.

In developing countries such Cameroon and Indonesia, extractive business such timber plays important role to the economy. Here a brief of economic estimation of timber plantation in case of Panama:

Verena. Griess and Thomas Knoke assessed some native tree species compare to teak (Tectona grandis). Teak is widely known for its commercial use and feasible plantation in Southeast Asia. As published in a forest science journal, their estimation result indicates that the investigated native tree species of Panama are comparable with T. grandis or regarding their economic profitability.

There are few information about the characteristics of several Panama’s native tree species such as Hieronyma alchorneoides, Swietenia macrophylla and Terminalia amazonia. The author claimed that they have been investigated within the study at hand.

“Besides its ecological impact, growing native tree species is now also economically legitimate”, says the author. Griess and Knoke added, by calculating land expectation values for all tree species, ideal rotation lengths could be determined.

The authors apply valuation methods of financial mathematics to see the competitive position of these three native species to the T. grandis stands in the same area.

The net present value (NPV) of those tree species are summarized as follow:

H. alchorneoides < T grandis < T amazonia, S macrophlylla

As described by the authors, “Using the NPV method and applying the standard scenario, the profitability of T. grandis is lower than that of T. amazonia and S. macrophylla and lies only slightly above the profitability calculated for H. alchorneoides.”

NPV measures the feasibility of a business by accumulating the net return during the period of estimation, say 10 or 30 years. To address the time value of money, the NPV formula employs a discount factor.

Read the Verena C. Griess & Thomas Knoke paper at New Forests (2011) 41:13–39, “Can native tree species plantations in Panama compete with Teak plantations? An economic estimation