Post: Africa’s small growers can save the continent

December 20, 2023

Africa’s small growers can save the continent

There is a looming shortage of wood in Africa, and large-scale industrial forestry is not the solution. In three decades, 185,000 ha of industrial plantations were established in sub-Saharan Africa, excluding South Africa, with investments of $1.5 billion, yielding only 0.3% of total African wood demand and 3% of industrial round wood (IRW) demand. The answer, says Dr Ole Sand, lies in smallholder forestry.

The caveat is that the smallholders should have the know-how and management capacity to bolster capital investments, own the land and trees, operate within sympathetic legal and regulatory frameworks, and have attractive and reliable markets for forest products.

Dr Sand, managing partner at the forestry investment company Criterion Africa Partners (CAP), presented the business case for investing in smallholder forestry in his keynote address at Focus on Forestry 2023.

VALUE OF FORESTRY ASSETS
Sand says forestry in Africa has been and still is undervalued relative to what it brings in.

Despite their green economy potential, forests have remained on the margins of international discussions around the green economy. Most national green economy plans focus on major energy-efficient or zero-carbon infrastructure investments for greenhouse gas abatement.

“From an investment point of view, the value of forestry assets is historically based on features like an attractive inflation-hedging portfolio and the land value, biological growth, wood products, biomass energy, and ‘higher better use’ of land.

“The ecosystem services provided by forests are fundamentally undervalued. I believe the value of sustainably managed forestry will rise because positive environmental externalities are increasingly being recognised, valued and monetised”.

Externalities are the unaccounted environmental impacts of production and consumption that affect consumer satisfaction and business outside the market system.

International markets are getting more regulated as the focus shifts to sustainable forest management, certification, chain of custody, recognising the role of forestry in protecting biodiversity and the centrality of forests in carbon sequestration in the global greening economy.

POPULATION GROWTH
The world population is expected to grow from 8 billion in 2022 to nearly 10 billion by 2050. Sand says that although the annual global per capita wood consumption has declined by 0.8% since 1961, overall growth has been 0.8% amid a yearly population growth rate of 1.6%.

Sand says the Food and Agriculture Organisation (FAO) estimates a minimum of 33 million hectares of additional productive forest plantations are needed by 2050 at $16 billion per year to sustain demand.

“Plantations are necessary to meet global wood demand.

Although plantations occupy 3% of the global forestry area, they supply 47% of industrial round wood. Demand for IRW is expected to increase by 600-900 million m3/year by 2050, equivalent to a compound annual growth rate (CAGR) of 1 – 1.4%.

“Globally, large-scale tree planting in agricultural and degraded lands is seen as a central component by most international initiatives to mitigate climate change. Plantation growth rates can be greater than ten times the growth of natural forests while reducing pressure to harvest natural forests unsustainably”.

AFRICA ENERGY CRISIS
Sand says Africa’s population is expected to grow from 1.4 billion in 2022 to 2.5 billion by 2050, and its “natural forests are harvested beyond capacity”.

The continent presently consumes 20% of the global wood supply and 36% of fuelwood. “The unsustainable charcoal value chain is hard to break because it represents income for many, contributing 2 – 4% to GDP. However, it is fraught with environmental, social and governance (ESG) issues along the value chain, preventing reputable institutions from getting involved”, he comments.

“Traditionally, Africa has exported raw, unprocessed logs and imported higher value, manufactured products.

Imports grew rapidly from $630m in 2003 to $1.4 billion in 2010 (CAGR of 12.1%), then increased slowly to $1.65 billion in 2022 (CAGR of 1.3%)”.

In sub-Saharan Africa (SSA), “joinery and poles experienced the greatest relative decline (both -1.4% CAGR since 2010), while increased local manufacturing saw demand for particleboard, MDF and lumber grow over the 2010-2022 period (+5.6%, 3.9% and 2.2% CAGR, respectively)”.

DEFORESTATION
Regarding natural forests, Sand says Africa’s forested area has dwindled from 31% in 1938 to 21% in 2019.

The natural forest area in Africa has fallen from nearly 1 billion ha in 1938 to 635 million ha in 2019, representing an average loss of 4 million ha/year, equal to a deforestation rate of 0.5%.
The deforestation rate has accelerated since 1990, from 0.24% between 1938 and 1990 to 0.94% between 1990 and 2019
During the same 81-year period, about 4 million ha of industrial plantations were established, about 30% in South Africa. The 4 million ha is equal to the average annual deforestation of the natural forests since 1938.

INDUSTRIAL FORESTRY
Sand says Africa’s relationship with plantation forestry is complicated. South Africa took the lead in establishing industrial plantations. By 1938, the country had 520,000 hectares, of which 370,000 were privately owned. Since its peak of 1.5 million hectares in 1998, the plantation base has fallen by about 1% per year to 1.2 million ha today.

In the 1980s, the World Bank provided $300 million to assist SSA parastatal entities in developing plantations. The plantations grew by over one million hectares during the decade, a growth rate which has not been achieved since. “To put this in perspective, the private industrial greenfield plantations during the past three decades has established less than 200,000 ha new plantations at a cost of about $1.3 billion”.

Since the 1980s, the World Bank shifted its focus from planting to strengthening forest regulations and ESG, leaving plantation development to the private sector. Industrial plantations in Africa represent less than 1% of the 635 million ha forest area in Africa versus 3% globally.

“Many of the parastatal plantations developed in the 1980s are steadily degrading”, Sand says. “For all of Africa, the base of industrial plantations has grown by a CAGR of less than 1% since the turn of the century, representing about one-half of the overall growth in wood demand for the period”.

LESSONS FROM FAILURE
CAP estimates that $1.26 billion was invested in over 20 greenfield plantation projects in SSA, excluding South Africa, since 1993, of which $841 million has been invested since 2010. Some plantations have been abandoned, and others consolidated, leaving about a dozen projects. Sand says the data is clear:

• Of the 186,000 hectares established at an average cost of $6,800/ha, only 8% was invested in industrial assets.

• The minimum investment estimated to protect and support these projects now is $500 million.

• By 2029, the total cost is projected to be $1.75 billion for 210,000 hectares at an average of $8,300/ha.

“What do we learn from these commercial failures?” he asks.

“Only 16% of the investments were made by strategic investors; most had limited experience in forestry. They did not know how to manage the growth, yield, and quality of the resources. The investor base was not aligned with the capital structure, leading to unsustainable ‘stop and go’ financing.

“The owners/investors had an under-developed strategy on routes to markets. Those supplying locally competed with the informal sector in price-driven markets. For many, the biggest constraints were social issues due to land conflicts and a challenging operating environment”.

Sand says the problem is the low financial viability of the remaining greenfield projects. “Commercially considered, about two-thirds of the $1.3B invested in greenfield plantations during the last 30 years was lost”.

CARBON RESOURCES
The global greening economy is bringing sustainable forest management facilitated by certification schemes like the Forest Stewardship Council (FSC) and increasing market regulations, like the European Union Deforestation Regulation (EUDR), to the fore. Investors are realising the roles of forestry in protecting biodiversity and carbon sequestration.

CAP believes new carbon-seeking capital may encourage new planting without considering that the commercially failed projects yielded an estimated average of $68 per tCO2.

“However, we estimate that on average, the 186,000ha has sequestered and stored about 20 million tCO2/ha, equivalent to over 100tCO2/ha. If we apply a carbon value of $10 per tCO2, it will cover about $1,000/ha, which is about 14% of the development cost.

“Developing new industrial plantations is not a solution for the supply gap and higher energy security. CAP sees only two realistic solutions: Scaling up smallholder plantation development and improving charcoal production efficiency”, explains Sand.

FOCUS ON SMALL GROWERS
Rural smallholders can be key in delivering global climate benefits while protecting biodiversity and creating local socio-economic benefits.

Sand says there is ample evidence of successful smallholder forest plantations in Asia, but Africa is lagging. “When given the market opportunity, smallholders will respond. Successful smallholder programs like NCT and TWK in South Africa benefit from the reliable global woodchip market”.

The advantages of supporting smallholders include:

Land tenure is secured through customary land traditions rather than a “land grab” for corporates.
Establishment cost is a fraction of the cost of industrial plantations ($1,000/ha vs $7,000/ha).
Low-cost establishment results in more planting/$ and more carbon sequestration.
Energy security through a local fuelwood supply (>700 million Africans rely on fuelwood for basic needs).
Job creation in rural areas.
Poverty alleviation through broad-based channelling of money to subsistence farmers in Africa.
Gender sensitive. Females are responsible for collecting fuelwood and can take ownership of the plantation woodlots.
The plantation can make the farmers more resilient to climate change
The timing is perfect, considering the wood supply-demand trajectory and growing interest in carbon markets.

Sand says far too few green economy plans have gotten to grips with the natural resource and ecosystem services potential of forests and the opportunities for poor people who largely operate in the informal economy.

“More money is pursuing investments than well thought-through projects meeting high ESG standards. Know-how and management capacity are arguably more scarce resources than capital. Like Newton’s second law of motion, I believe that the magnitude of forestry development is a function of knowing forestry and the markets”.

Source: Woodbiz Magazine – November/December 2023
(Pages 26 – 27)

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