Burapha sustainable timber industry


Why invest in reforesting that takes at least 8 years to earn a return?

Land degradation is one of the biggest environmental challenges we face across the globe.

Degradation and deforestation lead to climate change, as the carbon stored in soil and trees is released into the atmosphere. Almost every ecosystem in the world suffers some level of degradation. In Laos, 84% of land resources are considered at least moderately
degraded (FAO, 2000). Deforestation and forest degradation account for 80% of greenhouse gas emissions in the Southeast Asian country.

This is not only an environmental issue. It also has a severe impact on the livelihood of people in local communities. 70% of the population still depends on forests and waterways for income and nutrition. Many of the poorest people in Laos live in rural areas where they are most vulnerable to the effects of deforestation, pollution and climate change.

Reforestation as an economic opportunity

The solution to this problem is intuitively simple: reforestation. This is exactly where Laotian and Swedish investors saw an opportunity: to develop a sustainable timber industry for regional export markets. And reclaiming degraded land, countering deforestation and developing the local economy and infrastructure in the process. To this end they established Burapha in 1993. The company has since been acquired by SilviCapital, a Swedish investment company specialized in acquiring and managing forestry assets. Together with the Laotian shareholder, they see a huge potential for further sustainable expansion. 

Laos ideally located in the region

Laos is ideally situated to become an export hub for forestry products/wood-based products, particularly for plywood for use in construction. It is near some of the fastest growing economies in the world and several large importers of plywood, such as India,
Korea and Thailand. These economies see growing housing demand driven by economic growth and simultaneous population growth. Plywood is an interesting export product as it is increasingly used in the building and construction industry as an alternative over conventional metal, wood, and plastic.

These economies see growing housing demand driven by economic growth and simultaneous population growth. 

Other than its proximity to growth markets, Laos offers several other benefits as a hub for sustainable forestry in the region. There is high availability of land in low population density areas. Its government is stable. And trees just grow faster there!

Mitigating the risks of forestry investment

The key challenge to investing in forestry is the payback period. It requires a different view of cash flows. Even on the shortest cycle, it takes eight to twelve years to start generating income from selling a marketable product (i.e. construction wood, electricity poles or wood chips).

The risks are not merely financial. There are also social and environmental risks. For instance, working with local smallholders and the uncertain legality of the titles over the land they farm. This requires constructive dialogue and actively involving local communities. It is why Burapha invests considerable effort in working with local farmers’ consent and being FPIC-compliant (FPIC: Free, prior and informed consent).

When financing forestry projects like Burapha, FMO often makes use of blended finance structures, combining its own financial resources with those of the Dutch Government Funds it manages. This blended approach mitigates some of the financial risks associated with the forestry sector.

When financing forestry projects, FMO often makes use of blended finance structures. 

The syndicated loan FMO has arranged will be used for the construction of a mill and the expansion of plantations towards 7,000 ha by 2023. The further growth of plantations will be financed by internal cash flow coming from plywood mill operations.

Even limited reforestation has a huge environmental impact

From the start Burapha has been a sustainable forestry company. It only reforests degraded land. By setting up Special Management Areas and buffer zones it protects the natural forests from illegal logging and creates biotopes suitable for natural regeneration. By providing an alternative source of wood it decreases pressure on natural forests. The potential impact Burapha can have over a 10-year horizon is substantial. The projected capture of CO2 amounts to 2 years of total carbon emissions in Laos. This can be realized with 60,000 ha of reforested land, 2% of total land use in Laos.

Decent work in farming and forestry

By reforesting degraded land Burapha also contributes to improving the livelihood of people in local communities. During the 7-year growth cycle people can grow rice and cassava between plantation trees and let their cattle graze on the plantations. Local farmers
can earn income from selling their crops and livestock and from NTFPs (non-timber forest products). Moreover, the project offers people in local communities the opportunity to move into higher-skilled jobs. Forestry is in fact one of the most suitable industries to stimulate such a transition in low density countries like Laos. The expansion of Burapha’s plantations is expected to create around 1,550 full time jobs (1,200 in the plantation and 350 in the plywood mill), as well as 3,800 jobs for daily workers (1,000 full time equivalent), and around 10,000 indirect jobs. Women already make up 25% of the Burapha workforce and 44% of seasonal workers. With new alternative sources of income people no longer have to resort to poaching or making illegal charcoal. The additional income enhances the economic development and security in local communities.

A foundation for future development

With an expanding forestry industry, Laos has the opportunity to become ever more integrated in the regional infrastructure. New railways and expressways connect it to China and Thailand, unlocking previously remote rural areas and providing local communities with opportunities for further economic development. A Chinese proverb says: ‘The best time to plant a tree was 20 years ago. The second-best time is now.’ With its structured approach, Burapha will continue to contribute to increased income, reduced deforestation and improvement of biodiversity in Laos.