Timber's knotty promise for investors

Sunday 14 March 2004

Not long ago, forestry investment basked in the sort of popularity that residential property now enjoys.

By The Landlord

At seminars we learned that by investing a small amount today we could be assured of a huge sum tomorrow.

Timber prices had historically grown rapidly in real (after-inflation) terms, the trees themselves kept growing and, last but not least, a tree's value apparently increased disproportionately as it grew into larger grades with more valuable uses.

All this translated into projected returns of 13 per cent a year after inflation, and higher.

For some perspective, global shares have averaged only 5.6 per cent a year in real terms over the last 102 years.

Throw in tax deductions, a constantly weakening kiwi dollar and an impending worldwide shortage of timber and this was nothing short of investment nirvana.

Accordingly, many Mums and Dads embraced the forestry story and based their own super schemes on forestry partnerships, or occasionally shares in forestry companies.

Unfortunately, it has not turned out quite as the computer models suggested. Wood prices have plummeted over the last 10 years. Meanwhile the exchange rate against the US dollar has risen, as have costs, particularly shipping costs.

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