Yes, an investment in forest carries risks, just like any investment; risks that could even lead to complete loss. Our products are direct investments in natural resources (growing trees or cocoa trees). For this reason, the final economic result is not yet known and can only be forecast by us. There is no guarantee for the payback of invested capital or for the forecast returns. All investments in forest or agroforest are no deposit banking. This means there is no deposit insurance like there is for bank deposits. Therefore, this direct investment is linked to significant risks and can even lead to the total loss of the invested capital. Every interested person should consider this aspect in the process of decision-making.
Our products are not recommended to investors who have to be able to sell an investment at short notice. Since there is no stock market for our products, an individual sale of the direct investment prior to maturity cannot be guaranteed and may result in financial losses.
However, an investment in timber or cocoa is by nature a rather conservative investment insofar as it is linked to real values. Ultimately you are investing in the production of agricultural goods (timber and cocoa) and, thus, in a renewable resource that is much in demand. The ForestFinance website, brochures and current prospectus (available in German) contain all the information deemed necessary by ForestFinance to make a decision either for or against one of our forestry products. In our view the opportunities outweigh the risks.
Please feel free to consult independent experts (tax consultants, forestry experts, consumer protection agencies) for advice. Long-term forest investments are not recommended for inexperienced investors and require thorough information about the underlying business model and forestry.
Risks that are, in the opinion of the forestry and agroforestry manager, linked to the investment, are classified in the following scheme under the aspects risk identification, probability of occurrence, extent of damage and risk response. Each risk is attributed with the risk classes high, average or low. These are the risks that are, according to the forestry and agroforestry manager, most likely. Even if the forestry manager has taken all measures to ensure the economic success of the investment, a damage that could even lead to total loss for the investor is not impossible.
Risk description: Wind breakage due to storms and heavy thunderstorms, tree damages due to flooding after heavy rainfalls, harvest losses due to droughts.
Probability of occurrence: Low, for big damage. However, smaller damages due to wind breakage are more common.
Extent of damage: Differs, according to the extent of the respective weather event. So far no extensive damages in Colombia, Panama and Peru have occurred.
Risk management: Establishment of the fincas in regions where extreme weather events are rather rare. Planting of hedges as wind shields on the edges of the planted areas and use of storm resilient shading trees, construction of drainage canals and tethering up the young trees.
Risk description: Fluctuation of demand and prices.
Probability of occurence timber: Average. the fluctuation of prices is subjected to international changes on supply and demand. Cocoa: High. The stock market price for bulk cocoa is fluctuating due to individual events in important cultivation countries and speculating.
Extent of damage timber: High. A fall in prices has a significant influence on the earnings of the operation. Cocoa: Average. ForestFinance produces fine cocoa, the price of which is contrary to bulk cocoa completely independent from the stock market.
Risk management: The aim of the companies’ wood and cocoa processing centres is to expand the value chain, increasing their adaptability to international trends. We adapt the timber harvesting to the current market situation and harvest when the timber price brings the best revenues. The sale of fine cocoa is mostly regulated by contracts with chocolate producers with negotiated prices that are stable in the long term and independent from the stock market.
Risk description: Forest fire during the dry season, due to slash-and-burn practice on neighbouring fields etc.
Probability of occurrence timber: Average to low. During dry season a risk of forest fire exists. Lightning only occurs in thunderstorms during rainy season. Cocoa: Low. The dry season only lasts three weeks, neighbours supervise their forestry methods on a mutual basis and can be hold responsible for damages.
Extent of damage timber: Average to high. Damages caused by fire have only occurred selectively. Cocoa: Average to low. There is no real drought in general and measures against fire are taken immediately. Our cocoa plantations have never been affected.
Risk management: Fire protection strips prevent damage caused by overlapping fires. Patrols control the tree stands during the dry season round the clock. In addition, our forests in Panama (the same applies to GreenAcacia Colombia) are covered for fire damage by fire insurance and a replanting guarantee for the risky first five years. Permanent fire monitoring on site by our employees secures the cocoa plantations in Peru. The cocoa farming neighbours look after each other’s cocoa areas in the region.
Our project countries have proved themselves as good investment locations during the past years and we work together with very experienced local partner companies on the ground. Due to our network and experience we can react to political risks immediately. Read more about our investment locations here.
Risk description timber: Infestation by insects and pathogenic organisms. Cocoa: Fungal diseases such as Witches’ Broom Disease (Moniliophtora perniciosa), Monilia (Moniliophtora roreri) and black pod rot (Phytophtora spec.), pests such as cocoa mirids (e. g. Sahlbergella singularis), butterflies (e.g. Carmenta foraseminis) and termites or leaf-cutting ants.
Probability of occurrence timber: Low. Insects and harmful organisms occur mostly species-selective. Planting of various and robust species as well as selection of suitable locations decrease the risk of a large-scale infestation. Cocoa: Low, for strong infestation in case of suitable locations. Resilient cocoa varieties and planting systems have been selected and a monitoring keeps pests and diseases below an economically significant level.
Extent of damage timber: Average to high. In the case of inadequate plantation management. Diseases and pest can lead to reduced growth, in rare cases even to the death of trees. Cocoa: High, in the case of inadequate plantation management.
Risk management: Mixed cultivations reduce the risk of epidemic infestation. Vulnerable tree species are preventively protected and the management aligned to the situation. We commit to replanting poorly developed trees during the first five years of growing. All our plantations are regularly controlled by qualified employees, infested cocoa fruits and plant parts are removed mechanically, use of mostly organic pesticides in rare cases.
Risk description: Flaws in the forest and agroforest management.
Probability of occurrence: Low. The staff working on the fincas is qualified and has much experience in cultivating cocoa or timber. The tree stands are monitored every second year (timber) and compliance with the forestry management plan is reviewed and documented every third month (Panama).
Extent of damage: Average to high. Flaws or lacking knowledge of the forest or agroforest manager could have an impact on the production of timber or cocoa.
Risk management: Internal and external audits performed by FSC, UTZ and Gold Standard ensure the ongoing control of social, ecological and economic sustainability in our projects. The ForestFinance cocoa fincas in Peru are considered to be model fincas in the region. We manage the first big cocoa finca with fine cocoa clones as a pioneer in Peru.