A comprehensive analysis of teak plantation investment in Colombia

• A comprehensive model for forest investment in emerging economies was proposed.
• We modeled teak yield using the von Bertalanffy equation, a biological-based model.
• Forest yield estimation using a unique dataset and financial analyses were performed.
• We calculated profitability and non-systematic financial risk of forest investment.
• There is no risk at all for forest lands whose prices are lower than US$2000 ha− 1.

A financial assessment of forest investments is comprehensive if the analysis includes reliable yield estimates, land expectation value (LEV) and risk calculation. All of these aspects were considered and applied to teak plantations in Colombia, an emergent economy where high forest productivity, low opportunity cost of land, and decreased financial/economic risk have substantially contributed to promote forest investments. The von Bertalanffy non-linear mixed effect model was used to estimate forest yields using data collected from 31 permanent sample plots, measured over a 17 year period. A stochastic version of LEV along with other financial criteria was calculated by using a computer algorithm and Monte Carlo simulation. Finally, probabilities obtained from stochastic financial calculations were used in logistic models to estimate probabilities of success for a forest plantation project, a measure of risk assessment, after changing land prices. Results suggest that the potential forest productivity (i.e., the biological asymptote) ranges from 93 to 372 m3 ha− 1. The mean annual increment is 27.8 m3 ha− 1 year− 1, which is attained 6 years after the forest plantation is established. Profitability analyses for teak plantations in Colombia suggest a LEV of US$7000 ha− 1. The risk analyses indicate negligible financial risk for forestlands whose prices are lower than US$2000 ha− 1.