[Date Prev][Date Next][Thread Prev][Thread Next][Date Index
][Thread Index
]
WORLD RECORD ON TEAK YIELD
- Subject: WORLD RECORD ON TEAK YIELD
- From: cd@xxxxxxxxxx
- Date: Wed, 13 Mar 1996 03:04:00
from Dawn Star, Paris
re
CENTENO . JULIO CESAR wrote:
WORLD RECORD ON TEAK YIELD:
TRUTH OR TRICKERY ?
> ________________________________________
>
> Julio Cesar Centeno
>
>
> In a report recently released in The Netherlands, a world record on
> the production of commercial teak timber is reported, at the
> plantations established by the company Flor y Fauna in Costa
> Rica. The oldest of these plantations is only seven years of age. The
> Centro Cientifico Tropical of Costa Rica [CCT], based on
> information supplied by Flor y Fauna, has concluded:
>
> --- "the average growth-results of the plantations are higher than
> ever recorded in scientific literature in or outside Costa Rica"
>
> --- "the expected yield figures, within a reach from some 400 M3
> and 800 M3, are in accordance with the present growth
> developments".
>
> The figures refer to the expected production of commercial timber
> per hectare, in teak plantations with a projected 20 year rotation
> period. The figures are equivalent to a mean-annual-increment
> [MAI] of 20 to 40 cubic meters per hectare per year.
>
> The report was commissioned by Flor y Fauna. I have had the
> opportunity to review an abridged version of the report [9], collated
> from parts of the original, and apparently distributed to the media
> by the Dutch insurance company OHRA, at a press release on
> March 04, 1996. This posting is motivated by its unusual nature
> and findings.
>
> BACKGROUND
>
> Flor y Fauna is a Dutch owned company, which has established
> approximately 3000 hectares of teak plantations in the province of
> Alajuela, Northern Costa Rica, starting in 1989. Flor y Fauna sold
> the economic ownership of the timber to be produced from most of
> its plantations to the insurance company OHRA, who in turn sold
> it to over 13,000 individual Dutch investors, tied to life insurance
> policies.
>
> I carried out an evaluation of this investment scheme in 1993,
> following a request by the World Wide Fund for Nature [1]. I was
> supplied with documentation from the firm Van Rossum & Van
> Veen, a representative of Flor y Fauna, according to which it was
> OHRA's policy to guarantee investors the return of their net
> premiums paid, at the end of the 20 year cycle. According to Van
> Rossum & Van Veen, the guaranteed return might also include a
> small interest allowance "...of some 1.5 percent annually".
>
> It is argued that what has been placed in the market is an
> insurance product. Nevertheless, it is also clear that the life
> insurance policies are indivisibly tied to the investment in the teak
> plantations. They have also been publicly promoted and advertised
> with the character of an investment product.
>
> The insurance product seems now to have a guaranteed minimum
> internal rate of return of only 0.5 percent. But these policies were
> marketed with specific reference to far higher rates of return,
> turning them into particularly attractive financial investments.
> According to documentation provided by Van Rossum & Van Veen
> to WWF, Flor y Fauna promised investors internal rates of return
> from 16 to 22 percent [1]. In its sales brochures, OHRA promised
> investors rates of return from 15 to 25 percent.
>
> These rates of return were based on unrealistic projections of
> timber yields, and exaggerated expectations on the prices at which
> the timber could be sold [1].
>
> Flor y Fauna has been involved in legal complications and public
> scandals, due partly to its exaggerated claims on expected rates of
> return. The insurance company OHRA, Flor y Fauna and WWF-
> Netherlands encouraged the Dutch public to invest in these teak
> plantations, partly based on the claim that average timber yield
> would range from 40 to 48 cubic meters per hectare per year. At
> the time of my evaluation of this case, the company expected to
> harvest an average of 800 to 960 cubic meters of commercial
> timber per hectare, under 20 year cycles [1].
>
> These projections have been the cause of serious problems for the
> company since 1993. Flor y Fauna has been taken to a court of
> law, where it presented a document stating that it was not
> imaginary that OHRA's wildest dream [960 M3 per hectare] might
> be surpassed by a factor of 2, with production reaching over 1810
> cubic meters per hectare, equivalent to a mean annual increment
> of over 90 cubic meters per hectare per year [5].
>
> More recently the case has been brought to the attention of the
> Code of Ethics Committee on Advertising of The Netherlands,
> partly due to the false public claim that Flor y Fauna's teak
> plantations have been certified as "well managed" by the Forest
> Stewardship Council.
>
> A report by the Ministry of Agriculture has been repeatedly
> presented as evidence that the company's projections were, in fact,
> rather conservative [6]. According to this report, the minimum
> expected yield should be 53 M3 per hectare per year. The Dutch
> Parliament has questioned the Ministers of Agriculture and
> Finance about the validity of such projections, and their
> implication to investors.
>
> Flor y Fauna has had serious difficulties to substantiate its
> projections on financial returns promised to investors. Teak is a
> high-quality tropical timber, which has been grown in plantations
> for over a hundred years. In tropical America, on good soils, with
> favorable environmental conditions, and under good management,
> the production of commercial timber is known to safely range
> between 12 and 18 cubic meters per hectare per year, in the form
> of logs. There are plenty of references in scientific and technical
> literature, and information from commercial plantations
> throughout the tropics, supporting the safety and validity of this
> range. Exceptional cases have been reported where timber
> production has reached 20 to 30 percent above the high end of this
> range, during the first years of the rotation.
>
> Flor y Fauna's teak plantations have been officially endorsed by
> the World Wide Fund for Nature [WWF-Netherlands]. This
> endorsement has provided exceptional credibility to the operation
> within the public opinion. In 1993, the World Wide Fund for
> Nature asked me to visit the plantations, and prepare an analysis
> of its economic dimensions. The final report was presented in
> December of 1993, after Flor y Fauna, OHRA and WWF-
> Netherlands were given the opportunity to question its findings,
> and provide evidence to support their allegations [1]. One of its
> conclusions, relevant to the present discussion, reads:
>
> "The expected yields are unjustified, reverting in equally
> unjustified expectations on the financial returns to be obtained.
> Investors are led to believe they will receive returns which are
> highly unlikely. This may be considered fraud".
>
> The fundamental findings of the 1993 report are [1]:
>
> a] Individual investors in the Teakwood project were led to believe
> they would receive highly unlikely rates of return.
>
> The rates of return projected by Flor y Fauna were based on two
> fundamental variables:
>
> - The yield of timber the plantations could provide.
>
> - The Price at which the timber from these plantations could be
> sold in the form of logs.
>
> b] Rates of return were based on the unrealistic assumption that
> the plantations would produce from 40 to 48 cubic meters per
> hectare per year during the 20 year rotation period established for
> the project.
>
> Many investors seem to have signed contractual agreement at the
> time this claim was effective.
>
> c] Flor y Fauna based its rates of return on equally unrealistic
> projections of the prices at which teak logs of 12, 16 and 20 years
> of age may be sold. At the time of my assessment, the company
> expected as much as 830 US dollars per cubic meter of 8 year old
> poles, and 2,100 dollars per cubic meter of 20 year old logs.
>
> d] The risk of failing to achieve projected returns was largely
> transferred to individual investors. Two thirds of all returns to
> investors depend on production and prices at the very end of the 20
> year cycle. While returns to Flor y Fauna and OHRA depend only
> about 10 per cent from such a harvest.
>
> Flor y Fauna and OHRA seem to have partly recognized the
> validity of these findings, since the yield range has been
> significantly reduced. Expected yields seem to now range from 20
> to 40 cubic meters per hectare per year. The average expected yield
> has been drastically reduced, from 44 to 30 M3/ha-yr, but remains
> unrealistic. Investors are still led to believe they might receive
> highly unlikely rates of return.
>
> Parallel to the reduction of the average expected yield, there has
> been an unusual and significant increase in the range of such
> values. Originally the range was equivalent to 20 per cent of the
> lower estimate. But now it has grown to 100 percent of the lower
> estimate. The latest yield estimates seem to range between "some
> 400 and 800 M3" per hectare, equivalent to mean annual
> increments of 20 to 40 M3/ha-yr [9].
>
> These values might not have been different if they were due to
> possible financial and legal implications. Investors were promised
> they should expect rates of return based on a minimum yield of 40
> M3 per hectare per year. Deviation from such figures at this stage
> could lead to legal complaints, implications of fraud, and possible
> huge financial returns to investors. This problem seems to have
> been dealt with by simply sinking the original lower estimate [40
> M3/ha-yr] to half its original value, making it barely touch the
> higher end of normal yield estimates for teak. While at the same
> time, holding the upper end of the new yield range within promised
> estimates. The result is a highly distorted and exaggerated range
> of yield values, which reflects the insecurity and lack of reliability
> in what is, in fact, offered.
>
> At least three-quarters of the range of Flor y Fauna new yield
> projections are still beyond what should be expected from teak in
> the tropics, even considering the best soil, climatic and
> management conditions registered to date in actual practice.
>
> One of the most recent reports on yields from teak plantations in
> Costa Rica was published by CATIE [Centro Agronomico Tropical
> de Investigacion y Ensenanza] in 1995 [7], based on information
> collected by CATIE itself, from 24 different sites in the province of
> Guanacaste. The province of Alajuela, where Flor y Fauna's
> plantations are established, is contiguous to Guanacaste, in
> northern Costa Rica.
>
> CATIE is one of the most respected and credible forestry and
> agriculture research institutions, not only in Costa Rica, but in
> Latin America. It has solid international links, among others a
> structural cooperation with the Agricultural University of
> Wageningen in the Netherlands. Its report concludes in a
> statistically significant mean-annual-increment of 12 to 18 cubic
> meters per hectare per year, as is normally the case.
>
> Another recent report on teak was published by the Ministry of
> Forestry of Myanmar and the Food and Agricultural Organization
> of the United Nations, FAO, and refers to a paper presented at the
> second regional seminar on Teak, which took place in early June,
> 1995 in Yangon, Myanmar [8]. Productivity for plantations 40 to 80
> years of age was found to be between 8 and 10 cubic meters per
> hectare per year.
>
> OBSERVATIONS ON THE REPORT PRESENTED BY THE
> CENTRO CIENTIFICO TROPICAL OF COSTA RICA.
>
> It is mentioned on the cover page that the work leading to the
> report is partially based on a one-day visit to the plantations,
> which took place on february 21st, 1996, plus three day of
> "discussions". By the time of the one-day visit, Flor y Fauna had
> planted approximately 3,000 hectares in Costa Rica.
>
> The report reiterates that the data used to come to conclusions was
> provided by Flor y Fauna. This is corroborated in Table 2, where
> the dates on which the measurements where taken are all previous
> to the date of the one-day visit mentioned on the cover page [9].
>
> Flor y Fauna is an obviously interested party, under significant
> pressure to produce evidence to support its allegations. Particularly
> in such cases, information is normally gathered and processed by
> an independent third party. The conclusions of a report based on
> information supplied by the company should thus be taken with
> extreme caution. This is specially so with regard to information
> related to the fundamental issues on which Flor y Fauna is being
> questioned. One such issue is growth rates.
>
> The data on which conclusions seem to have been based is
> presented in Table 2 of the report [9]. As presented, it is
> statistically meaningless, since there is no information on the
> variance, or the standard error, of the data used. Without these
> variables, it is difficult to attach credibility to the average figures
> presented, for they could well include large statistical errors.
>
> There is no information on how Flor y Fauna produced these data,
> what sampling method was used, what sort of variation is inherent
> to the data collected, how significant are the results.
>
> Under such circumstances, and given the serious controversy in
> which Flor y Fauna is involved, to base a report on uncertain
> information supplied by the company itself is a perilous adventure
> with limited credibility.
>
> The CCT reports highlights, as one of the reasons for the high
> expected yields, that the plantations of Flor y Fauna are located in
> a "Wet Atmospheric Association, and during some years it is quite
> possible that in the area it does not occur any effective dry period"
> [9]. When this occurs, growth may be enhanced, but the quality of
> the timber is affected. To produce high quality teak, there is a need
> for a dry period of 3 to 5 months. A dry month means less than 50
> mm precipitation. When a dry period is not present, the quality of
> the timber tends to be poor in terms of color, texture and density.
> The possibility that timber from 12 to 20 year-old trees, with these
> characteristics, will be sold for the unusually high prices projected
> by Flor y Fauna, approaches a fantasy.
>
> PRELIMINARY CONCLUSIONS
>
> There are two fundamental conclusion from the abridged CCT
> report I've had the opportunity to review. The first is that the
> reliability of the data on which the conclusions are founded is
> extremely questionable.
>
> The data was collected by the interested party involved, Flor y
> Fauna, which in turn is badly in need of evidence to support its
> allegations on growth rates. These allegations have drawn the
> company into a legal, financial and political storm. Considering
> this scenario, and the history of false claims which has paved the
> development of this project, the credibility of the information
> supplied by Flor y Fauna could be legitimately questioned. One
> such false claim indeed is the public allegation that the plantations
> have been certified as "well managed" by the Forest Stewardship
> Council.
>
> During the last two years, and as far as I am aware, the only one
> piece of evidence used by Flor y Fauna and OHRA to support their
> allegation about growth rates was a report by the Ministry of
> Agriculture of The Netherlands [6]. This report has been
> introduced as evidence in a court of law, to the Code of Ethics
> Committee on Advertising, and even to the Dutch Parliament.
>
> It is now well understood that this report is based on seriously
> flawed method of collecting and processing statistical information
> [3]. It is plagued with technical errors of such fundamental nature
> that a case of forged evidence could be made based upon it. Its
> credibility has been suddenly pulverized.
>
> This seems to have left Flor y Fauna and OHRA in an extremely
> perilous position, having lost their only platform of technical
> support for their allegations on growth rates. They are seemingly
> under urgent pressure to produce some other piece of evidence.
> The report commissioned by Flor y Fauna from CCT may provide a
> temporary relief to this situation.
>
> There are three fundamental points of controversy: the yield which
> may be obtained from the plantations, the price at which teak logs
> of 12, 16 and 20 years of age may be sold, and the consequent rates
> of return to investors. The CCT report makes no reference to rates
> of return, or to the prices at which the production from the
> plantations may be sold. The relevance of its conclusions on yield
> projections are seriously under question.
>
> Almost simultaneous with the CCT report, OHRA released a
> summary of a financial analysis by KPMG Accountants, dated
> February 27, 1996. I will make further reference to this analysis in
> a future article. At this stage, it is important to highlight that this
> report avoids the discussion of the three fundamental variables
> mentioned above. KPMG has wisely kept a distance from the
> allegations on yield, prices and rates of return, the three issues at
> the core of the debate, clearly distancing itself from any form of
> endorsement of such projections.
>
> According to the KPMG report, expected returns to investors in
> OHRA's Teakwood project now range from 11 to 23 percent. This is
> significantly lower than originally projected. Nevertheless, KPMG
> does not give an opinion on the actual sales proceeds in years 12,
> 16 or 20, or on the validity of OHRA's expected rates of return.
>
> CLOSING REMARKS
>
> OHRA has sent a letter to my lawyer in The Netherlands, Bernard
> Tomlow, threatening to take legal action if I do not refrain from
> making critical comments about their teak business. OHRA seems
> particularly sensitive to the findings of my report on Flor y Fauna
> [1], and to my consistency in defending them. Its approach to deal
> with this issue is not to present credible arguments to support its
> allegations, or to encourage a healthy and objective debate on the
> subject, but to impose forced silence through legal actions. So far,
> neither OHRA nor Flor y Fauna have provided any evidence to
> justify modifications of the fundamental findings of the report.
>
> OHRA has publicly released reports and press statements which
> make questionable and distorted references to the findings of my
> report. At the same time, it pretends to curtail the right to defend
> my point of view.
>
> I do not plan to renounce to the right of free speech, specially in a
> case where thousands of Dutch citizens may have been lured into
> making investments, through misleading and inaccurate
> information. I have nothing to gain in this debate, but to let those
> people know, and so many others who have invested in similar
> ventures, that someone is willing to defend the technical and
> ethical dimensions of a forestry project in the tropics. To allow
> these irregularities to continue, without raising a responsible
> warning to all parties involved, is to endorse what I consider to be
> a seriously flawed operation, bordering on fraud. This is
> furthermore a forestry project, involving a professional
> responsibility in my area of competence, a responsibility I am not
> willing to elude.
>
> There is an urgent need to develop plantations in the tropics, and
> to encourage private investment in such initiatives. Tree
> plantations may create jobs, wealth, and foreign exchange in
> countries under severe economic and social limitations. They may
> contribute to the alleviation of poverty, and of the related pressure
> on tropical forests. Nevertheless, we must make sure that such
> initiatives fall within acceptable technical and ethical limits, to
> ensure their success and multiplication in the future. Projects such
> as Flor y Fauna's may discourage further private investments in
> plantation in tropical countries, thereby preventing the alleviation
> of the unsustainable pressure on their natural forests, and on their
> unique biological, ecological and strategic value.
> _________________________________________________________
>
> REFERENCES
>
> 1. Centeno, JC: ECONOMIC ANALYSIS OF FLOR Y FAUNA'S
> TEAK PLANTATIONS IN COSTA RICA, December 22, 1993.
>
> 2. Centeno, JC: TEAK CONTROVERSY FLARES UP IN THE
> NETHERLANDS. Internet posting, February 05, 1996.
>
> 3. Centeno, JC: TEAK STING? Internet posting. February 19,
> 1996.
>
> 4. Centeno, JC: BLASTING THE FSC IN THE NETHERLANDS.
> Internet posting. March 1996.
>
> 4. F.H.J. van Schoonhoven [Flor y Fauna]: MEMORANDUM OF
> ORAL PLEADING. December 7, 1993.
>
> 5. Ministry of Agriculture of The Netherlands: DE TEAK-
> PLANTAGES VAN FLOR Y FAUNA S.A. IN COSTA RICA,
> December 28, 1993.
>
> 6. RENDIMIENTO Y CALIDAD DE SITIO PARA Gmelina arborea,
> Tectona grandis, Bombacopsis quinata y Pinus caribaea EN
> GUANACASTE, COSTA RICA. CATIE, Informe Tecnico 256, Costa
> Rica, 1995.
>
> 7. Ministry of Forestry of Myanmar and FAO: THE SECOND
> REGIONAL SEMINAR ON TEAK. 29 May - 3 June 1995. Ynagon,
> Myanmar. Resource Paper No. 2: Overview Problems in Teak
> Plantation Establishment. Dr. Apichart Kaosa-ard, Chiangmai
> University, Thailand.
>
> 8. Centro Cientifico Tropical: TECHNICAL AUDITING OF THE
> GROWTH AND YIELD PROJECTIONS FOR Tectona grandis
> PLANTATIONS ESTABLISHED BY FLOR Y FAUNA S.A., Second
> Preliminary Report. Abridged version, 7 pages. Costa Rica,
> February 26, 1996
> ---------------------------------------------------------------------------------
>
> Julio Cesar Centeno is a forestry specialist from Venezuela from
> whom WWF requested an economic analysis of Flor & Fauna's teak
> plantations in 1993. He was one of the key negotiators of the
> International Tropical Timber Agreement, UNCTAD, Geneva,
> serving as spokesman for tropical countries. He served as forestry
> advisor to the Secretariat of the United Nations Conference for
> Environment and Development [UNCED 92], and as Director of the
> Latinamerican Forestry Institute between 1980 and 1990. He was
> invested by Prince Bernhard of The Netherlands with the Golden
> Ark Award for his work in the forestry sector. He serves as a
> member of the Governing Board of SGS-Forestry in Oxford, United
> Kingdom, and as acting vice-chairman of the TROPENBOS
> Foundation in The Netherlands.
>
> Fax: INT + 58-74-714576
> E-mail: jcenteno@xxxxxxxxxxxx
> _________________________________________________________
>
> March 12, 1996