Study Proves the Economic Feasibility of Reforestation with Native Species

Initiative establishes model for reforestation projects to contribute to climate goal

“Few countries have the forestry vocation of Brazil, and this topic may be viewed from the standpoint of business opportunities,” says Miguel Calmon, the Forests Director of WRI Brazil, which is the organization in charge of the VERENA Project (www.wribrasil.org.br/projetoverena) – the Portuguese acronym for: Economic Appreciation of Reforestation with Native Species (Valorização Econômica do Reflorestamento com Espécies Nativas).  This study shows that reforestation with native species is economically competitive.

This Project has also developed a free tool for calculating whether a reforestation project or agroforestry system (AFS) is feasible, meaning whether its financial and natural capital are evenly balanced, and if it offers job and business opportunities in rural areas.  This is an important initiative, because Brazil is committed to rehabilitating and reforesting twelve million hectares by 2030, as part of its climate goal under the Paris Agreement.

This means that funding is needed at appropriate scales for reforestation projects using native species and agroforestry systems, which must post profits in order to attract investments.  A study conducted by the Instituto Escolhas in 2016 on how much must Brazil invest in order to rehabilitate twelve million hectares of forests (Quanto o Brasil precisa investir para recuperar 12 milhões de hectares de florestas?) indicated that this venture would absorb investments of some US$ 10 to US$ 16 billion (R$ 31 to R$ 52 billion), depending on the selected rehabilitation scenario.  A Portuguese-language platform exploring forest planting costs (#Quantoé?plantarfloresta) is also intended to steer estimates of how much would be needed to rehabilitate forest areas on rural properties in Brazil, with or without financial payback.

During the past two years, the VERENA Project has analyzed the technical and economic feasibility of reforestation with native species, together with social and environmental benefits, explored in twelve case studies of properties in Amazonia and the Atlantic Rainforest.  “In order to take decisions, investors require more information on risks and returns.  Tree species native to Brazil have existed for thousands of years and have already been successful in commercial terms, but not on the capital market.  Case studies are important for building up an inventory of practices and lowering perceptions of risks,” stresses Alan Batista, an investment analyst with WRI Brazil, who was one of the authors of the study.

Most of the cases examined require heavier investments per hectare and longer lead-times for recovering investments, compared to planted forests and the farming and ranching sector.  This extended payback period is due to longer harvest cycles for native tree species.  However, environmental risks (droughts and dry seasons) and price variations can be mitigated through diversification.

This across-the-board analysis of the twelve case studies shows that the average payback on assets is higher (16%) for reforestation with native species and AFSs than the average figures for agriculture and pine or eucalyptus forestry projects (13%).  However, furthermore, fthis comprehensive review also indicates that the average payback on investments in the twelve case studies of the VERENA Project required sixteen years, compared to twelve years for case studies of agriculture and forestry projects planting exotic species.  “In statistical terms, the average payback on assets and investments are equivalent, in the case studies compared to agriculture and forestry projects.  This means of wagering on reforestation and AFSs with native species is a good business,” says Alan Batista.

In addition to pursuing Brazil’s climate goal, investments in rehabilitation and reforestation using native species and agroforestry systems also helps ensure compliance with the Brazilian Forestry Code (CFB), through making economic use of Legal Reserves (RLs).  Many of the assets examined through the VERENA Project are compatible with the sustainable stewardship of these Legal Reserves.  Its analyses indicate other business opportunities through integrated production systems, such as Crops+Ranching+Forestry Integration (iLPF – integração Lavoura-Pecuária-Floresta), which allows annual harvests, in parallel to planting native species.

Headed up by WRI Brazil in partnership with the International Union for Conservation of Nature (IUCN), the VERENA Project is also supported by the Children’s Investment Fund Foundation (CIFF).  More than fifty partners were involved during the first two years of work.

The findings of this WRI study are available at http://wribrasil.org.br/sites/default/files/VERENA_technical-note.pdf and are also among the highlights featured by the Economics and Environment Studies HUB of the Instituto Escolhas.