Financial returns from collaborative investment models of Eucalyptus agroforestry plantations in Lao PDR

Global demand for forest products is increasing and plantation forests are supplying a growing proportion of wood to industry. Plantation expansion has however slowed and the location and management of plantations to meet future timber needs is uncertain. In South East Asia, population pressure and land tenure arrangements will challenge broad scale plantation establishment. Companies and government are looking to plantation models that integrate local community or conservation needs but there has been little financial analysis of integrated production systems that can inform investment decisions by corporations or smallholder tree growers. Lao PDR has at least four million hectares of degraded forest land that could potentially be used for production and conservation purposes. The Lao 2020 Forestry Strategy aims to increase forest cover across the country, particularly on degraded lands, to enhance rural livelihoods and natural capital. This includes the most recent target of 1.2 million ha. The strategy envisaged that, in part, forest cover would be increased through the establishment of commercial tree plantations by local farmers, and by domestic and foreign investors, to provide wood exports and domestic timber products. Realising this target has been challenging. Foreign investors have been allocated concessions but have not been able to achieve area targets due to community resistance. There is a need to explore timber production investment models that engage local growers and address community needs for food, but there has been little analysis of these integrated approaches. This paper presents financial analyses of three plantation models: a 'collaborative investment model' with Eucalyptus Intercropped with rice by landholders for the first year of the rotation, Eucalyptus intercropped with cassava by the forestry company, and a Eucalyptus monoculture. Results indicated that all models were highly profitable with positive NPV under a 12% interest rate, and Internal Rates of Return (IRR) ranging from 17% to 20%. The Eucalyptus-rice model generated the highest returns, with 21% of the NPV going to the local rice farmer. Eucalyptus monoculture was more profitable than when intercropped with cassava. Results are compared with those from other plantations in the region. Adoption of timber plantation models that integrate local food production can avoid potential conflicts over land allocation for plantations, build local engagement and support enhanced food security. The implications for forest and land use policy in Lao PDR are discussed.