The Baltics were once part of a huge primeval forest that covered much of the Northern Hempishere. Whereas elsewhere the trees have been axed, here in the Baltics they remain. But trees can make money, so it doesn't stop people trying to cut them all down, even if they have to steal them, as we find out in one of our feature stories. It's cold hard cash that will decide the state of Baltic forests and the challenge is finding a
balance between that and demands of enviromentalism. This week's industry insider looks at forestry and timber.
Next time you go into the forest think about this 's the greenery that you see around you may be the color of money. The Baltic's most valuable resource is just that, a resource, and even though it is the home of wolves, bears, lynx and other animals long extinct in Western Europe, Baltic forests are just money in the bank to shrewd investors.
You make money out of a forest, to put it bluntly, by cutting down trees for use in the timber industry. With modern technology just about any tree can be used for something. The main species are Scots pine, spruce, birch, aspen and alder but there are many others. Though it is not as straight forward as that, if everybody were to cut down the trees that they owned pretty soon there would be none left. There is strict legislation governing how and when you can fell.
Toomas Kams of KMS Forestry management argues that this type of investment is not just medium to long term; it is really long term, somewhere in the order of 10-15 years.
"Quite a lot of forest owners in Estonia… cannot get income from forest through felling. If you have an 80 year old pine forest, you can't fell it until it is 100 years old. You have to wait before you can make money," he said.
Since the turn of the century forests have been subject to the same property speculative bubble that swept the entire real estate market and finally burst in the summer of 2007.
Now, forest management companies say, the situation is terrible.
"You can only make money if you have good quality trees," Kams said.
"The situation is bad as the growth of Estonia was 0.4 percent. There are probably too many people invested in real estate," he adds.
The majority of investors are from abroad. They come from the U.K., Ireland, Denmark and other Scandinavian countries.
Forestry is serious business that attracts only high end investors, wealthy individuals, insurance companies and investment clubs. All have been clobbered by falling share prices and the drying up of credit lending. To make it a viable business proposition, investors should look to purchase about 200-300 hectares.
"If every year you can fell 1,000 cubic meters you can make 32,000 euros per year," Kamms said.
The market is subject to the same laws of supply and demand that govern every other market and have the same weaknesses as any other investment in the region.
"I think the problem is mostly in the Baltic market share price. In the Baltic market, local factors are the most important and clients can be trapped," said Mark Shein, director of corporate clients at Arcovara, a major real estate firm.
Some investors, in an effort to get their money back, have sold off chunks of the forest. This creates its own problems, especially with the environment.
"Many large forestry owners have sold off small parts of the forest, creating far more people to monitor and control in terms of exploitation," Arvids Ozols of the U.N. Food and Agriculture Organization said.
He added that despite all the noise about protecting the environment the fact that about 40 percent of the land in Estonia and Latvia is owned by private landlords to make a profit means that environmental damage is still going on.
"Many times lumber companies view it as too much hassle to go back in and replace the trees, leaving the area with unsightly pits and drainage problems," Ozols said.
But if it's the money you are after property management experts insist forests are still a good investment.
"Forests are still relatively cheap compared to Europe and they are sustainable. The price of timber is quite high," Kamms said.
Shein remains confident that for the long term investor forests are a good option. Though timber prices have recently gone down slightly, the long term trend 's with the growth of demand in China and India 's is upwards as with commodities in general.
"I think it is a good time to invest as the prices are more realistic. The market has stopped, is growing, and is reaching normalization," Shein said.
"I think years 2004-6 will never repeat," she added with a smile.
