Effect of land prices, transportation costs, and site productivity on timber investment returns for pine plantations in Colombia

Abstract

The relative importance of land costs, site quality, and forest location are major concerns in forestry investments, but little research has been done to assess the impacts of these or other factors on financial returns. In response to this issue, the effects of land prices, wood transportation costs, site productivity, and discount rates on timber investment returns for pine plantations in the Andean Region in Colombia were estimated. For all the scenarios analyzed, the internal rate of return varied between 6.4 and 15.6%. High site quality with high growth rates were profitable in all scenarios at real discount rates ranging from 8 to 12%, but low site qualities seldom had positive net present values. Less expensive land and locations close to mills had better rates of return. More distant locations, poor quality sites, or areas with high land costs generally did not meet the discount hurdle rates. Site quality, which is the factor most easily manipulated by intensive forest management and improved technology, was substantially more important than land prices and transportation differences in determining timber investment returns.