Forest plantations in Southwestern Europe: A comparative trend analysis on investment returns, markets and policies

This paper represents the first analysis of forest plantation investments on a comparative perspective in the context of Southwestern Europe. We estimated and compared potential investment returns at aggregate level for some of the most important productive forest plantation species in the region, including hybrid poplar in northern Italy, in Castile and León (Spain) and in Navarre (Spain), eucalyptus and maritime pine in Portugal, and radiata pine in the Basque Country (Spain). We carried out a financial analysis before-taxes, using typical capital budgeting indicators. Indicators were calculated according to a baseline scenario as well as in alternative scenarios, analyzing how the main policy and market factors influence returns. We also carried out a trend analysis to provide means for comparing the evolution of expected and actual returns in recent years. Overall, our results indicate that in Southwestern Europe there are some opportunities for reasonably attractive investment returns (IRR > 5%) from forest plantations mainly for current landowners and forest products industry, and only in some cases potentially interesting also for financial investors. Nevertheless, there are significant differences among species and contexts as well as structural limitations in the region – i.e. related to timber market, biotic and abiotic risks and forest holdings structure – that new investors would have to take into consideration. More in specific, hybrid poplar plantations in Italy and Spain are estimated to provide on average the potentially highest returns, but the large range of variability and the high land and opportunity costs are unlikely to make them an attractive investment for non-landowners. Eucalyptus plantations in Portugal are estimated to be the only investment where non-landowners could expect to get relatively interesting and stable returns, although a recent law reform in the country could limit new investments. Maritime pine and radiata pine plantations in Portugal and Spain present lower returns, suffering the situation of depressed stumpage prices after the 2008 economic crisis, which strongly affected the sawmilling sector.