Functioning markets

Focus on functioning markets and competing business models

The FCCF will focus on the financing of business models primarily based on the production of timber for local, regional and, to a lesser extent, international markets. Long-term trends in timber production are difficult to predict but continued construction activity in the region, in particular in the tourism sector, as well as increased use of wood residue for the generation of energy, have strengthened the price of low value timber. Here it is interesting to note that Costa Rica for example is unable to produce sufficient timber to satisfy the regional market and imports more than 60% of timber from countries as far as Chile and Canada. (2)

 

Important also is to note that FCCF will not acquire land, so that the risks and capital outlays associated with land acquisition will be minimised or avoided.

The assessment of the viability of business models will be made based on current prices for timber produced in secondary and degraded forests (SDF). The Fund will not finance business models which are not viable based on the current state of local and regional markets.

 

A simulation based on different samples taken from different secondary and degraded forests in Costa Rica, combined with market prices and international cost benchmarks illustrate that SDF are attractive investments. The annual rate of return of FCCF (net profit sharing with local communities and taxation) is between >30% and 5% depending on the natural conditions of the forest. The base case return for the FCCF derived from a 15-year-old growing SDF is 11%.

 

(2) OET (2008): El Abastecimiento Sostenible de Madera en Costa Rica