Financial and risk analysis of African mahogany plantations in Brazil

Abstract

Wood demand is increasing in quality and quantity, and economic studies are fundamental to analyze the feasibility of forest projects. These researches are in line with management and silvicultural studies, highlighting growth and yield modeling. This paper proposes an economic evaluation of implementation of African mahogany stands in Brazil under different perspectives of forest management. Data are from plantations ranging from 1.1 to 15 years old in different Brazilian regions. Financial analysis was undertaken using Net Present Value (NPV), Internal Rate of Return (IRR) and Equal Annual Equivalent (EAE) for a 20-year period considering three thinning management regimes (A - unthinned, B - one thinning at age 10 years remaining 150 trees ha-1 and C - two thinnings, first at age 8 remaining 150 trees ha-1 and second at age 15 years remaining 75 trees ha-1) considering an initial density of 278 trees ha-1. A Monte Carlo simulation was performed considering six risk variables. Results showed that the discount rate is the variable that most influences the viability of the project. All site indexes in all management regimes lead to a feasible financial return, with NPV values ranging from 25,053 to 125,780 Brazilian reais per hectare, being regimes B and C the best ones. The probability for an unfeasible investment is almost zero, highlighting African mahogany as a great forest investment opportunity, providing high interest rates values (14% to 25%), superior to most available market rates of return.