A critique of competitive plantation production of tropical timber in SE Mexico and guidelines for improvement

ABSTRACT

Mexico turned later than most countries in Latin America to plantations to supply its demand for wood products. Several indications show that there is potential to be able to reach this objective and reduce the US$ 6 billion trade deficit in the sector. Starting with the last administration, an aggressive promotional program and subsidy system was implemented to promote commercial forestry plantations with the goal of planting 875,000 ha in 25 years. Unfortunately the program (PRODEPLAN) has not been successful and at almost 10 years of starting there are only 75,000 ha planted. The program has faced several structural problems as well as practical at the grower level. Among the most important is the lack of information and knowledge of tree growing. Basic issues like; site-species matching, seed provenance and plant quality are easily overlooked or underestimated with the natural consequence of poor plantations, with low Mean Annual Increment (MAI) and therefore profitability. The purpose of this paper is to analyze how PRODEPLAN has evolved since the beginning to shed some light on what might be done to improve or help reach its goals. At the same time I will try to gather useful, practical, information on the basic procedures to successfully establish a tropical plantation in Mexico.

There are big private companies that are currently harvesting tropical timber plantations (TTP), and setting the standards. There is also a state in the tropics, Tabasco that implemented a parallel program focused on plantations of Gmelina based on a previous analysis and GIS of the areas with the right characteristics to grow it, and the proper infrastructure (nurseries, site prep equipment) that is now having good success. In terms of PRODEPLAN right now is the second state with more funds received. It is expected that the program, with the demonstrated success, will generate a critical mass and will grow exponentially because it has proven to be a good alternative for the cattleman of the region. Some of these experiences can be extrapolated into the implementation of the PRODEPLAN to improve its effectiveness. The program is being concentrated in big companies (40% of the paid area), in three tropical states (56%) and in a few species (57% in only 4 species, 3 tropical). Therefore it seems that a more focused approach with the strategy of going for larger operations that take advantage of economies of scale and invest in the right infrastructure will benefit the program and help growers involved have profitable plantations.

1. Introduction

Mexico like most countries in Latin America is turning towards intensively managed forest plantations to supply its demand for wood. Unlike most countries, Mexico started late since it was not until 1997 that an aggressive government subsidy program focused to promote commercial forestry plantations. This program currently has over $107,000,000.00 US dollars waiting to be distributed among the recipients of the subsidy, clearly showing the inadequacy in operation of the program. Originally the plan to promote plantations (PRODEPLAN for its acronym in Spanish) stated a goal of 875,000 ha of plantation in a 25 year period. Today, almost 10 years have passed and even though there are over 300,000 hectares enrolled in the program, there are only 80,000+ ha planted. Out of this, less than half are commercially viable with growth rates over a minimum required to be profitable, and only about 35,000 had received the subsidy up to 2004.

The above situation together with the poor management of natural forests, and one of the highest deforestation rates in Latin America (second only to Brazil), has the country with a current import-export trade deficit of over US Dlls $5,2801 x 106 in the forest products sector. Most of the deficit is from pulp for paper, which in turn is imported from all over the world, particularly because the installed capacity of pulp mills in Mexico is obsolete and insignificant. On the timber production sector, currently Mexico has increased every year the importation of wood from countries like Chile, the US and Canada. Consequently it is clear that; (1) the demand is identified and growing, (2) the supply is unsatisfactory, (3) the government is interested to reverse the situation but (4) there are macro and micro structural considerations that need to be addressed if the situation is going to change. In this paper the idea is analyze at some micro level considerations and gather relevant information for those that want to pursue this new area of agribusiness in the country.

2. Objectives

The objective of the paper is to summarize the current situation of the tropical timber plantations (TTP) in Mexico to shed some light on the possible causes of the lack of success of the PRODEPLAN in this area. At the same time, it is intended to provide a summary of the most important aspects to be considered in the establishment of tropical forestry plantation, especially in tropical species. Particularly, some specific objectives are; to establish the potential, as a of business alternative, for tropical timber plantations based on comparison of performance of plantations in Mexico versus other Latin- American countries to benchmark against them, and with some case analyses establish some guidelines for competitive tropical timber growing.

3. Status of tropical timber plantations (TTP) in SE Mexico.

Several instances have analyzed forest information from Mexico, which has been gathered by the ministry of environment where the forestry sector is controlled, and regarding tropical timber it can be said that:

• Currently, there are no TTP intensively managed under harvesting therefore all the tropical timber comes from natural forests

• There are two classifications of tropical timber, what is called "Preciosas" or high valued timber (HVT) that includes Mahogany and red cedar and "Corrientes" or low valued (LVT) species that include the rest. The price difference between these classes is 2.4 to 3 fold.

In terms of statistics for the production of tropical timber, it has to be mentioned that the overall information is based on the 1992-1994 forest inventory and that the methodology for gathering information is not under strict scrutiny so it has to be considered with care.

3.1 Tropical timber production in México

The production of tropical timber is limited to harvesting natural forests so it is important to mention that tropical forests compromise 19% of the forest area of the country as shown on table 1. Even tough the area of tropical forest is only 3% less than the temperate forest as it will be shown later; the contribution to the overall wood production is negligible.

a) Species

As it has been mentioned, in the case of tropical species basically there are 2 classifications: the high value "preciosas" that include mahogany (Swetenia macrophylla) and red cedar (Cedrela odorata) and the low value or "Corrientes" that basically include all the rest of the species.

b) Volume

According to the official information, Mexico forest production fluctuates between 6 and 9 million m3. From figure 1 it is possible to see that the contribution of the tropical timber produced is, on average for the years presented, 4.2% and of these only 12.2% (on average) is from high value species

c) Tropical timber market

The market for tropical timber is well established there is a high demand; the prices for the High value wood (Mahogany and cedar) is 2.4 times that of low value tropical woods and pine. According to the official information2 on value of production, these 2 categories contribute only 1% and 4% respectively to the total US$48 million per year produced in the country in 2002. It is therefore clear that there is a demand and potential of TTP to satisfy the domestic market, and can become an alternative for rural development or a complementary business for cattle and agricultural growers in the tropical states.

3.2 The story of PRODEPLAN

PRODEPLAN or program for the development of Plantations (from the Spanish) started in 1997 as a subsidy program to stimulate plantations with a payment to those growers, who after a year, will have a 90% survival rate and with healthy trees. In other words, it was intended as a reimbursement of expenses for those who successfully planted trees. The first edition of the program had a complicated mechanism in which interested growers would "bid" for the subsidy and those who asked for less money would be awarded the payment until the funds were finished. The program started with 4 categories, one of which was trees for pulp, even though in Mexico according to a recent study by the international consultants Jaakko Pöyry, there is only one plant that uses logs as raw material, the other mills use recycled material and one sugar cane residues.

The program set its goals to 875,000 ha of plantation in a 25 year period (2000-2025), and supposedly pretended to cover "up to 60% of the plantation costs", however this first edition awarded subsidy to growers that asked up to US$300/ha. This first edition of the program was considered a complete failure due to the complicated mechanism, the amount it granted, and it only reached 11 projects (figure 2).

The program was reengineered completely taking 2 years, so in 1998 there was no subsidy awarded. Later on 1999 the format changed and a systems of "grading points" was created and a fixed $700/ha amount (with some variations) was established if the project met the criteria and received over a certain grade. In the same figure it can be seen that the system did not catch up until 2001. The new system allocated a certain sum of money and until it was all awarded the program was closed for the fiscal year. That is why in 2001, 2002, and 2003 there were two processes each year. According to the responsible for the operation of the program, the projects awarded represent in average 40% of the submitted ones. The ones eliminated are due to faulty documentation, and in most cases for lacking proof of ownership or power of attorney of the land to be awarded the subsidy. This is a reflection of the chaotic situation of land tenure in the sector, which as we shall see later is amongst the main problems for development of the sector.

As of 2004, there were 1,571 projects presented with a total of 303,037 ha of forestry plantations for the whole country. Out of those, 188,284 ha (62%) are registered in tropical regions in 10 states (table 2), however 79% of the TTP concentrated in only 5 states. These states are all neighbors and are located in the humid tropics of Mexico with the best climatologically and site conditions for plantations.

Another interesting fact that needs to be considered, when analyzing the information, is related to the legal status of the recipient of the subsidy which relates somehow to land tenure and size of the project. There are four basic subjects or categories, each with particular characteristics, as shown in the following table:

The relevance of the legal status is shown in figure 3 where it can be seen the total hectares submitted to PRODEPLAN, and of those, which ones are located in the tropics. Basically, it can be said that private companies submitted more area than any other organization, association or private growers, and of the total 93% of the area is located in the tropics. The second player are the private owners or what it is called in Mexico "small growers" (Pequeños productores), but in this case only 42% are located in the tropics. Finally in the third and fourth place come the social companies and ejidos, which in both cases represented some kind of communal land property, with about half of the area in average located in the tropics.

Before revising the subsidy approved, a final consideration is the analysis of the project size. To review this, figure 4 shows the number of project presented up to 2004 in 5 size categories. Very small projects with less than 50 ha, small between 50 and a 100 ha, that together include 57% of the projects presented. The medium size projects between 100 and 500 ha represent 33% of all the projects and what can be called the commercial projects with more then 500 (5%) and bigger than 1,000 ha (4%).

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