Investing in Regenerative Agriculture and Food
Investing in Regenerative Agriculture and Food podcast features the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
Investing in Regenerative Agriculture and Food
364 Paul McMahon - Why regen forestry is natural capital’s Trojan horse for institutional investors
A conversation with Paul McMahon, co-founder SLM partners, about forestry being the gateway drug for natural capital for institutional investors to put money to work. Why? Because they are used to investing in forestry — it is a well-established investment sector with very long-time horizons. Rotations here are 30+ years, but it’s also one with many challenges: current practices usually mean cutting down a forest after 30 years and completely replanting it. That basically scars a landscape for life — mostly monocultures.
Interestingly, alternatives have been popping up over the last few decades. Continuous Cover Forestry (CCF), where you selectively harvest and let natural processes do most of the work, requires highly skilled foresters, but it can deliver superior returns alongside all the environmental benefits. These are production forests you want to be in — and forest bathe in. Now that a lot of academic research is emerging about carbon levels, returns, etc., the time might be right for more money to flow into it.
More about this episode on https://investinginregenerativeagriculture.com/paul-mcmahon-4.
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In Investing in Regenerative Agriculture and Food podcast show we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
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Like the most hardcore Excel jockey, who never sees the sun, you know, should be convinced.
Speaker 1:the evidence is there, so even the most cynical investor doesn't care at all about walking through a mixed forest where you can see wildlife instead of everything mowed down underneath should be investing and it shares many of the same principles around working with nature, not against it understand the ecology, biology, trying to harness these natural cycles, still being commercial and profitable. There was actually a great study done in Storhead, a forest in England, where they compared a part of that forest which we actively manage, using continuous cover, versus another part which is just being basically protected and not being managed at all. And the part that was being more actively managed had higher biodiversity value, so more bird species were recorded. So that was being more actively managed had higher biodiversity value, so more bird species were recorded. So that was fascinating.
Speaker 2:Which is such a philosophical shift. Are we the active, positive keystone species or not? Like in many cases, we're not, but we could be if we choose to, and we don't have to sacrifice necessarily financial returns. This is the Investing in Regenerative Agriculture and Food podcast, where we learn more on how to put money to work to regenerate soil, people, local communities and ecosystems, while making an appropriate and fair return. Welcome to another episode.
Speaker 2:Today, paul McMahon is back and this time we talk about forestry. Paul is one of the co-founders of SLM Partners and has been absolutely monumental that may be a very big word, but still in the space of agriculture and putting significant capital to work there but has also been active in forestry and just published Investing in Continuous Cover Forestry CCF in Europe, and I was really looking forward and I'm really looking forward to sit down and spend some time on let's, the tree side of things, but not the ones that get nuts out of them or fruit or still productive trees, but not to eat. So, paul, welcome back to the show. This is the fourth time was 2016, 2021, and last year we talked about your, your updated white paper, and this time, another white paper, but now forestry. So welcome back.
Speaker 2:Thanks again. Great to be here again and to dive straight into the matter. Not compared to agriculture, but what triggered you actually because you've been investing in forestry for quite a bit why forestry and why Europe in that sense, when you started with the Forestry Fund a while back? What triggered you to add an extra layer of complexity to already not an easy sector, which is agriculture?
Speaker 1:Yeah, and Esalen Partners, as we're better known as an investor in regenerative agriculture, and we currently manage about $750 million in assets, of which the vast majority is in agriculture, which is interesting.
Speaker 2:We've been tracking, let's say, the space, and I encourage you, we have a nice sheet. We tried to keep a sort of overview of the space, but it sort of feels like your growth, because you were episode number three and your co-founder, Tony Lovell, I think, was number two or four or something like that, and then, let's say, the rhythm of you coming back to the podcast also reflects, I think, in the assets under management and the space in general. Like there's a nice hockey stick curve there which is absolutely needed. It's still super underinvested, but at least we're getting to the billions, we're getting to the high hundreds of millions and yet we're getting to some significance.
Speaker 1:Yeah, I know you always ask that question what would you do with a billion dollars? We're not too far away, you know. We're slowly, slowly getting there, but we have been used for a while, as you know that we started in 2009, raised our first fund in 2012, focus Australia. I'd say the first year was very, very slow growth, but there's been a bit of a hockey stick over the last yeah, I think, three to five years, where we've seen that increased interest in natural capital, regenerative agriculture, forestry, land-based investments. But I think you know we're so deep into regenerative agriculture really saw the potential, you know, 10, 15 years ago, really got excited by what was happening on the ground. You're working with great farmers, regenerative farmers all over the world, who are trialing, improving systems you know as being more profitable, better for the environment and they could be scaled up.
Speaker 1:Um, but then we we started looking at forestry and what really struck us was we when we came across a group of foresters in ireland actually, who were leaders in continuous cover forestry. It's really the quick. It's a form of regenerative forestry and very much equivalent, you know, I think of the forest sector to regenerative agriculture in the food sector and it shares many of the same principles around working with nature, not against it, understanding the ecology, biology, trying to harness these natural cycles still being commercial and profitable, but also thinking about the environmental impacts as well around carbon, biodiversity, water, these sort of public goods. And so it really resonated with us that these groups, even though they'd never really met or spoken to another, were speaking the same language and coming from the same philosophical underpinnings, so that really resonated. I think that was certainly one reason we started getting excited about forestry, and the second part was maybe some personal bias.
Speaker 1:I'm from Ireland. I grew up in Ireland. I have a sort of deep attachment to the landscape there, could see what was happening in terms of afforestation, but done in a more, let's say, monocultural, industrial way, and sort of an itch told me there must be maybe a better way to do things. And so when I started poking around in Ireland, we found some great foresters, we saw some opportunities and then we actually raised a fund in 2018 to invest in forestry in Ireland. So it really comes out of that experience and that's been a very successful fund and a very good experience, and so it really opened up our eyes to opportunities in forestry in Europe in particular.
Speaker 2:And do you remember the first time it landed sort of forestry? I mean growing up in Ireland, which has, I think, sort of forestry. I mean growing up in Ireland, which has, I think, a different relationship to trees than the rest of the world or to many places, and has been a place which has been deforested, I think, incredibly, and there's some efforts, of course, to restore that. Do you remember when, like the forestry, but more from the commercial side and the continuous side, like landed on your lap, you're like okay, let's check it out. Lap you're like okay, let's check it out. Or you were like, okay, we're into grazing, okay, maybe a bit of agroforestry, but let's, let's focus. Or what? What happened when you you maybe got an invite to visit a forest like that? Or the first time you you saw, oh wow, this could be actually a potential, significant, institutional, investable, uh piece of piece of deposit.
Speaker 1:Yeah, well, I really started, uh, seeing it out of my um childhood bedroom window. You know, just growing up in Ireland, where I grew up in South Dublin, you looked across the Wicklow Mountains and, you know, growing up in the 1980s, seeing these plantation forests kind of springing out of nowhere actually and really transforming the, the skyline, you know, around Dublin. So I've always, I've always grown up with it and be very curious about it. And then I, as a from the investor point of view though, you know, we started digging in, we started to see some of the, the benefits of Irish forestry or how you know this could be a very, a very investable opportunity.
Speaker 1:You know, but just to give a little context, that the history of Irish forestry, quite interesting one.
Speaker 1:Like, if you go back a hundred years, ireland was down to a one percent forest cover, like we had almost no trees left, so they'd obviously completely cleared, mostly for cows and sheep, for grazing and for the forest agriculture. There's been a gradual process of afforestation over the last 100 years, first driven by the state and then actually by private landowners, farmers, who've been given very generous grants by the government to plant new trees, mostly focused on conifer plantations, mostly sick of spruce and non-native species. So monoculture plantations, managed on quite short term rotations like 30, 35 year rotations. Where they're planted, they're maybe thinned a couple times, they're all chopped down, then replanted, this kind of rotational forestry system. So that's where I grew up seeing the development of that. Um, uh and, and you know, and there's a lot, I think, backlash against that system in our own too, where it's, it's very ugly to look at, it's quite poor for biodiversity, um, uh, and then, you know, when these trees are all chopped down, it's quite cataclysmic. It looks a bit like like the battle of the psalm or armageddon.
Speaker 2:You know, it's very ugly and destroys a lot of huge patches of tree, these huge patches of land where and then next door is still a standing that maybe will be cut down in another five-year cycle or something, and everything is like raised to the ground Exactly everything's jumped down yeah, and sometimes you know it could be 10, 20, 50 hectare blocks, so a big, big area's been cleared.
Speaker 1:So there's a lot of opposition to that, and people know that it's not optimizing for carbon storage, for biodiversity, it can pollute waterways, it's extremely unpopular, very low immunity value. So, yes, it produces lots of commercial timber, which is important, but it doesn't deliver on these other environmental benefits, and so I think that that was what really drove me to dig further, like is there a different type of forestry, one that can still deliver that commercial timber which we need to build houses, to make furniture, need to build houses to, um, you know, to make furniture, to build pallets and paper and packaging, everything else but can also store carbon, be good for biodiversity, provide beautiful habitats, look good in the landscape and provide all the other sort of functions that forestry needs to deliver? And so that's what that was led us to discovery of continuous cover forestry as an alternative system that really works.
Speaker 2:And so just to describe because I've seen a backlash also in other places in France recently big posters of these sort of mosaic ones. You see foresters standing and you see these huge pieces, patches of completely cleared pieces of wood, and then, of course, course has to regrow and it's a really weird imbalanced system. And so when you just to give us an understanding of for the layman or laywoman, what's the difference if you would walk through a continuous cover, like if you describe it to investors, because you have to explain this to institutional investors which might be used to forestry to a certain extent but then you're saying there's a better way which actually has better results and more resilience, etc. How do you describe a forest like that?
Speaker 1:So I think the clue is in the name. So, continuous cover forestry. The first principle is it tries to maintain permanent forest cover, so you're never clearing the entire forest. Instead, you're keeping that permanent forest cover intact. You know, in perpetuity you do harvest, but when you know, in perpetuity, um, you do harvest, but when you come in and harvest, you're harvesting individual trees or groups of trees, so you're never clearing whole areas. You're taking out individual trees or groups of trees, um, uh, and by doing that you open up gaps, you let in more light and you promote natural regeneration. And that's another key, key feature of this. Instead of having to replant trees, um, you trees grow, seeds, seeds fall on the ground, new trees, uh saplings form, and then you create a condition so if those saplings to grow, to fill in the gaps and to become the next cohort, that the next generation is coming through. So natural generation is a key principle as well.
Speaker 2:So you don't have to, you don't have to read to a certain extent. I think there's some, but that's just that concept of imagine the forest will regenerate itself, of course, the types that can grow there and want to grow there and will, and then you do the selection of, instead of going in there with your stick or whatever robots we're inventing at the moment, but starting to plant the seedlings, which is an incredibly costly endeavor.
Speaker 1:Exactly. It's expensive because you're kind of fighting against nature. You had a forest ecosystem, you cleared it all and now you just have to reestablish it. So you know it's your cause of battling against the elements, whereas if you continue to have a forest, you keep the forest ecosystem intact, you have the right conditions, it's not too bright, it's not too dark, it's and very easy. It's quite technical, but by varying the amount of light that's coming through the canopy you can actually determine which species will regenerate. So if you more light demanding species, like certain conifers, you might open up the canopy more, even more shade trawler species, maybe like an oak, you can have a kind of tighter canopy. So it's very interesting how the light effectively determines what grows back and and how quickly.
Speaker 2:So you're manipulating sounds like a very technical job. That sounds like a very technical job. That sounds like a very technical job, which is, I think, one of the tricky parts. This is much more skill needed and knowledge heavy than chopping the whole thing down and just replant it with a monoculture plantation.
Speaker 1:Yeah, it takes probably a higher level of forest management expertise. We always say that conventional forestry, industrial forestry, is rotational forestry is really forestry by numbers. You know it's been well established. It's very predictable. You use certain yield tables. You can predict the wood flows.
Speaker 1:Um, your, your actions are preset effectively, whereas with the continuous growth forestry is much more adaptive. Um, yes, there are some rules and principles that you're following, but you're really adapting to the forest and how it's, how it's evolving, how it's behaving, and making decisions based on that. Again, very similar to regenerative agriculture that adapts of management. You know you're always adapting to what's actually happening, what you're seeing in front of you.
Speaker 1:It definitely takes a higher level of skill, but it's also much more rewarding, I think as well, for the foresters who manage to master those skills, because it's much more satisfying to have that feeling of nurturing or being a custodian or steward of that forest and help you evolve in that direction. And I think what's exciting is, when you get through these processes of transformation, regeneration, you eventually get to a much more natural type of forest, so much more regular forest. You have big trees, you've little trees, you've medium-sized trees, you've different species of trees, so it's not just a monoculture anymore. So it's a much more natural, diverse forest and much closer to an original forest, but still produces predictable, stable flows of timber, which is what we need for our economies and for industry as well.
Speaker 2:Yeah, there's so many directions to go to, but let's stick with, let's say, the emergence of it. How do you? And the predictability which sometimes is an intention, but I think, just to double click on the resilient side of things, because you said, let's say, the rotational force, which sounds good, but rotational simply means you rotate through, you cut everything down and replant has been very predictable. That's changing right, like it's no longer is, at least in Europe, so predictable as it used to be for the last. And you need long-term predictability because these are short-term cycles, as you said before. 30, 35 years is, of course, an eternity in the current chaotic landscape we're in. So what has been happening to, let's say, the standard practice in forestry in terms of returns, in terms of predictability, pest, disease, weather like is that? Is it still as stable and does it fit nicely in the Excel sheets as it used to be?
Speaker 1:No, it's a great question, because I think what we're seeing is that forestry all over the world now is severely challenged by climate change. This is the big threat that's coming down the track. You know that the conditions that did exist were quite stable for hundreds of years are no longer stable, so we're seeing increases in extreme weather events, we're seeing droughts, we're seeing wind and storms, and the home zones of trees are changing. So forests are effectively migrating north in Europe In the same way the greatest south with the ice ages, you know, maybe 10, maybe 10-15 000 years ago. Um. They're now moving north as the climate warms, um and and the.
Speaker 1:If you have a monocultural plantation, a single species, uh sing, um very limited genetic diversity, that's much more vulnerable, you know, to these kinds of uh physical risks. You know whether that's a big storm coming through and blowing everything down, which we definitely see in Ireland, the British Isles or whether it's pests and disease, like the bark beetle, which has ravaged Central European forestry. For example, germany lost 2% of all its forests to bark beetle between 2018 and 2020, and that was linked to drought conditions. It's two years.
Speaker 2:It's like a two-year period. One beetle species wipes out 2% of Europe.
Speaker 1:Like that's incredible, like it wouldn't have fit in any model and effectively this Norway spruce, which grows very well further north, had been planted further south in Germany, and as the climate has warmed and these drought conditions came in, that tree was super stressed. And when trees are stressed, they're vulnerable to pests and disease, and so that's what we're seeing, and so there's an absolute imperative now to make our forests more resilient to these changing conditions. And how do you get resilience? The key is diversity. You need to have forests with multiple species, with genetic diversity within each species, so that they can adapt, you know. And so, yes, some trees will fall by the wayside and not make it, but other trees will actually flourish, and if you have these more diverse forests in the first place, they will naturally evolve and adapt and turn into these, you know, healthier, resilient forests in the future. So that's an absolute key necessity, I think, for this century.
Speaker 2:And do you see that? Let's say, because one thing is seeing that in the field, seeing that in the forest, seeing that with foresters, seeing that with people that are on the ground. The other is the institutional investors that are often quite far from the field, literally in agriculture, quite far from the forest. It might be in London Wall Street, it might be in Mumbai, it might be in many other places, but not necessarily in an Irish forest. Do you see that notion of that? The current system of forestry is struggling, at least, and will continue to struggle, because none of this is going to go away. Do you see that? Starting to land, or is that a hard sell?
Speaker 1:let's say I think people are waking up to it because the evidence is unavoidable. For example, in January Ireland was hit by probably its most devastating storm ever for forestry, storm Owen, which blew down about 3% of all the forests in Ireland. You know, in one event in one day. But if you look all across continental Europe there's similar stories. 2005, sweden was hit by Storm Gudrun which destroyed tens of thousands of hectares of forestry. Very interesting storm gudrun which destroyed tens of thousands of hectares of forestry.
Speaker 1:Very interesting studies that came out of that showed that um the least, sorry, the most resilient forest, with those with the most diversity and the ones that blew over the most were the, the single species sort of spruce stands.
Speaker 1:And there's some amazing research also from austria where they looked at, I think, for um across 40 000 hectares over a 25 year period and what was being damaged by both wind and pests and disease, and again they were finding that the forests with more diversity, managed using continuous cover, were the ones that had, I think, a third less damage than the more monocultural, single-species towns. So I think we're seeing the events. Forest owners and investors are dealing with the impacts, but then we're also seeing the academic research to show which types of forests are surviving these events best right now and you can extrapolate that into the future. There's also been, I think, a big movement from academia. But then, coming to policy at the EU level, the EU launched a new forest strategy, 2030, which really calls into question the more simplistic kind of cliff-fell rotational systems and calls for more diverse continuous cover managing approaches. And actually in 2023, the commission launched a closer to nature forest guidelines which again really champions continuous cover as a as a resilience of the long-term sustainable forest manager.
Speaker 2:So I think there's a huge shift going on within forestry right now and that's that's bubbling up to to the institutional investment world as well rich almost suggests or sounds like the regulation side of things in forestry, let's say at least in europe, is more advanced in the forestry side than agriculture in terms of push and in terms of um, or at least it sounds like. This is like there's a serious regulation push and there's a serious demand side as well, which we'll talk about, like forestry products and the wood side of things, but all the different ones, but like the regulation, probably after 20, 30 years of lobbying of the pioneers seems to be getting there.
Speaker 1:Yeah, I think the last five years we've seen that shift, you know, and I think it's coming from the Brussels commission level. We're seeing it's in national government levels too. Uk Ireland, slovenia, poland, many countries have specific policy now to promote continuous cover. I would say, though, that the policymakers are going gently, I'd say you know, there's a lot of more voluntary measures, incentives rather than requirements, and that's probably not a bad thing, but maybe learning from some mistakes in agriculture. If you use too much stick, not and that's probably not a bad thing, but maybe learning from some mistakes in agriculture if you use too much stick, not enough carrot, you can alienate people, and the reality is we also need the foresters, who have the training and the skills of the UC system. So it's going to be a process of evolution. It's not a sudden overnight change. But, yeah, we're very encouraged by the policy level support that's now coming for these alternative systems.
Speaker 2:And is it possible to transition, let's say, an existing forest that has been managed rotationally to a continuous one? Of course it depends on the context, depends on a lot of things, but already you have to cut it down and start over.
Speaker 1:Yeah, no, absolutely you can. And it's called transformation to continuous cover forestry, and that's really what we're doing in Ireland. So we and so we run a small fund. We raised about 30 million euros in 2018, back by the European Investment Bank and other investors. We've acquired, I think, over 80 forest properties in our own since 2018. We built a portfolio just under 2,000 hectares in size and we bought most existing forestry. So most existing forests, typically 15 to 25-year-old forests, and most of them were Sitka spruce monoculture plantations, because that's what's there. So that's what we're starting with.
Speaker 1:So we start with those forests, but then there is now a well-defined way that you can transform those forests, and it involves coming in and thinning.
Speaker 1:You're thinning actually a little bit more heavily than you would normally.
Speaker 1:You're getting more timber out of the forest earlier, which is good for IRRs and cash flows. You open up the canopy, you're letting in light and you're promoting the conditions for natural regeneration, and that will start happening about probably year 25, year 30, you know, in the spruce forest in Ireland. And once you get that regeneration, then you can start switching your focus to take out larger trees. And then you can start switching your focus to take you larger trees and then you really come in and thinning every four, three or four or five years, taking out maybe 20 of the volume of the forest on a perpetual basis, just constantly thinning, thinning, thinning and gradually take out the more mature trees uh, you know which are, which are ready for harvest. So, yeah, it does take decades, it's not a quick process, but we started that now, um, and you know, come back in 50 years and hopefully those forests will look very different, much more diverse and much more mixed species and diverse structural forests and how have investors responded to that?
Speaker 2:like, in a sense, and also structures. I don't know the structures in forest, like. Are they set up to be that long term in terms of 50 plus years? I'm imagining yes, because it doesn't make sense to constantly sell and buy portfolios like that. You just pay a lot of money to lawyers, which is unnecessary. What are the structures that are really long-term and does it make sense to start transforming these current assets that are a bit threatened, of course, by climate and storms like you just had?
Speaker 1:Yeah, well, I think you could separate the financial structure from the nature of the asset. You know forests are forever, you know so they're going to keep going, they'll be there forever. But financial structures, there are options. Yes, you can have perpetual, evergreen vehicles where there's never any intention to sell, and that's certainly an option. But you can also have more close, short-term, closed-end funds 10 to 15 years which is what we've used in Ireland, for example, where you're effectively the building up a portfolio, aggregating properties. You're beginning that process, transformation. You put in place um, the systems and processes and showing things and moving the right direction, um, and then it is possible to even exit, because it is also the value of those forests and so the capital value is very important, um, like year 10, year 15, year 20, whatever it is, and I think there is well established ways to value forests, so you don't necessarily have to hold these assets forever either. So I think there's flexibility on the structural point.
Speaker 2:And have you seen that, let's say, the health of a forest or the potential of a forest is being valued differently now, with all the knowledge we have in the academia and the papers that are coming out? Let's say, the work you put in in this Irish forest, is that, of course, hypothetically speaking, is that going to be rewarded? Or is it just going to be like the next one in portfolios? Are buyers starting to value, okay, what's the potential? And, just like soil, health is starting to get into some, let's say, valuations. But we still see that very little in agriculture. How is that in forestry?
Speaker 1:I think in forestry there's a well-established way of valuing forests which is relatively simple, where you effectively you model out future timber volumes, so what you can expect to harvest in the forest, all from a very long-term basis like a hundred year model. So we're looking very far into the future. You're then assuming what you can sell the forest.
Speaker 2:Herbal farmers are like listening to this and thinking, oh my God, how do I model? Yeah, this is a whole different world.
Speaker 1:It's very long-term thinking, exactly so you're modeling at timber volumes, maybe a hundred years. You're assuming timber prices, some linked inflation, you're assuming the cost of managing the forest and then you're effectively getting your cash flows and then you're using a discount rate and that's a very critical point of this because the disc rate has a huge influence using a disc rate to get a net present value of those cash flows. So the fundamental basis of value forest is no different from. We can continue to discover forestry and conventional forestry. Our model is just a little bit different because discover forestry and conventional forestry. Our models just look a bit different because, instead of having a rotational forest model where in year 30 everything gets chopped down and and liquidated and turned into cash and then you've got to wait 30 years for the next harvest event, we had this continual uh harvesting. We're harvesting all the time, effectively taking you off a few percent, few percent people send you know every few years, and so the model looks different, but the principles of how you work out the value is actually the same.
Speaker 1:Now what I think may change things is well, what about monetizing some of the environmental benefits of continuous cover, which we can get into a bit more, but, for example, carbon being maybe most evident or closest, let's say, to monetization. So there's clear evidence that continuous cover forestry stores more carbon. It locks more carbon into the standing carbon stocks because the forest is never going to be clear, so you have higher average standing carbon stocks in the trees. You tend to have more carbon in the soil because you're avoiding those very destructive clear fill events where a lot of carbon gets oxidized and actually released from from the soils. So you're giving more carbon the soil. You're producing a higher proportion of um, higher value, wider logs, which goes more into construction, timber and furniture, some long-lived wood products, as opposed to being burned for energy or turned into paper and pulp. So you have more carbon in actually wood products. So you, you've more carbon in these different carbon pools. And so, yeah, continuous cover forestry stores more carbon.
Speaker 1:And if you take a conventional forest which is managed in a rotational forestry, convert to continuous cover, that can qualify something called improved forest management. So it's a particular kind of carbon methodology and that delta, you know, can allow you to generate carbon credits and if you can generate and sell those carbon credits, that could generate a new source of revenue for your forest that wasn't there, which you then put into your model, and that does lift the values and that's exciting and that's beginning to happen. So, but at its core, we still need that timber model. You know, you have to believe we could use high volumes of high quality timber over very long periods of time, and that's what's going to drive the value of the forest and we need that demand for timber, and so let's talk a bit about that shift.
Speaker 2:I think there's a massive shift in terms of bio-based building, uh, by waste economy, like there's a lot of. There seems to be a lot of extra demand in in europe at least, I don't know too much outside, um for um, for timber and timber products and timber derivatives, or whatever we want to call them. And just like, what do you see in the demand side? Is that being met? Is it relatively easy? Do we need a lot of extra managed forest? Does it need to come from outside? What do you see on that side? Because if the demand is not there, of course prices, especially long-term, are going to be under pressure and it's going to be challenging for them all.
Speaker 1:Yeah, so, historically, timber demand has been linked to gdp and so it's been somewhat cyclical, um linked to things like housing starts and construction activity. But we, we, we are in the middle of this structural shift. You know the structural upward shift of demand for timber which has been been driven by the move towards a low-carbon bioeconomy, and Europe is in the vanguard of this. To the European Green Deal. It's trying to achieve net zero by 2030, 2050.
Speaker 1:And that's going to drive change through a lot of sectors. For example, construction, moving away from very carbon-intensive concrete, steel and aluminium to wood-based building and that's going to be a huge source of demand. Moving away from plastics to biomaterials, you know, and forms of paper and packaging as well. And then also bioenergy, you know, as a form of renewable energy where you're taking residues and lower-value residues from the forest effectively and burning that for energy is also a very important part. So the studies show that demand for timber in Europe is set to grow by about 50% between now and 2050. So it's going to be a big uplift in demand and so we're very bullish about timber markets and we think timber prices are going to be strong because of that shift to a low carbon bioeconomy.
Speaker 2:And specifically, I think, in terms of storing carbon, and you might get rewarded for that or not, and but like the larger trees, the larger logs, like you talked before, are it's more likely it ends up in furniture or it ends up in buildings, um, compared to the smaller one. Of course, when you're thinning at the beginning you might have a lot more smaller ones, but you start to select over time for larger and larger trees and of course, how to remove them is a whole different ballgame. But it becomes selecting for quality and selecting for larger, which also gets better price, not just because you have more tonnage of trees. There is a limitation in infrastructure there, right? Not all countries or forests or areas are. Are, um, let's say, equipped yet to saw larger ones. I remember from the white paper there's a challenge in infrastructure, just as is processing, let's say in agriculture. And how, how difficult is it to to fix that? Does it need massive new sawing equipment very expensive, or is that relatively easy to to overcome to get these bigger logs in?
Speaker 1:yeah, well, in any forest management system you typically have three types of logs coming out of the forest. So the highest base use is always going to be saw logs, so wide amateur saw logs that can go into make construction timber, so sawn timber, furniture and those long-lived, high-quality wood products. The next category is what's called pallet or fencing, so it could be medium-sized trees, are then the pallets for for transport or fencing. And then the final category is, like the thinnest trees, the logs or branches are. It's called pulp, and that could go to make and pulp and paper and packaging in certain parts of the world, of europe certainly in finland, scandinavia, very strong industries or panel boards, so things like NDF or other kind of composite board materials. So there's three different categories and very clear differences in pricing. So saw logs typically sell for at least three times more than pulpwood. So you always want to try and grow as much saw log as you can, like specialty coffee, basically yeah. So saw logs is where the money is, basically yeah. So soil logs is where the money is. And so one of the beauties of continuous cover forestry is that it tends to focus harvesting on those bigger trees and so you're getting a higher proportion of soil logs to those higher values.
Speaker 1:Now it is true that even the soil mills in certain parts of Europe, especially when we see this in the UK and Ireland, in certain parts of Scandinavia, they've been set up actually for relatively small, large soil logs, logs, so your trees that have been cut really prematurely, that maybe 30, 35 years in the british isles, um, kind of juvenile trees.
Speaker 1:So they're set up to process rows and soil logs which aren't too big and with continuous cover. You let trees grow longer so you will have bigger trees and big, wide logs coming off the forest and so you will need to adapt maybe some of the soil mill machinery to deal with those. But in other parts of Europe that happens naturally. So in Germany and continental Europe they're used to dealing with big logs and big trees and actually they get they pay very good prices because you get a much higher quality product. If you can take a big saw log you can make into wider timbers and cut it in different ways and so, and so you need to retool a little bit the sawmills, but there's no reason why they should. The bigger saw logs should not be processed and attract a very high premium in the market.
Speaker 2:And just for me to understand our layman, there's an interesting sentence in the white paper on that Ireland and the UK is an ideal place because you have one of the fastest growth rate of trees. First of all, is that true? Yeah, otherwise it wouldn't be in the right paper. But my imagination would always be go to the tropics or go south because there's more sunlight. But why continental Europe, and especially the, let's say, north, north, central and maybe even the Nordics, is so interesting in terms of tree growth? What makes trees grow so fast there?
Speaker 1:Yeah, so within Europe we have temperate forestry, which I'd include. North America, ireland and the UK really stand out. We have the best growth rates for trees, mainly because of the weather. We have very mild winters, so the trees grow for most of the year and it's always moist. It's always wet and humid. If you look at continental Europe, look at Scandinavia and North America very cold winters and so the trees shut down for maybe you know best part of half the year. So the growth rates in Ireland would be three times what you see in Scandinavia, or most. That starts to add up.
Speaker 2:Yeah, many parts of North America Over 100 years.
Speaker 1:Yeah, it's comparable to similar to New Zealand, I'd say Maybe not quite the level of the tropics, but when you look at temperate forestry, Ireland and UK really are kind of world beakers when it comes to forest growth rates Fascinating.
Speaker 2:And so you've been talking to a lot of institutional investors, obviously, about this since you raised the other fund. Now you're launching a new one as well, significantly larger. What is different this time? Are they more receptive? Because, in forestry, 30 million is great, but it's a small fund. As you said yourself, you need a few hundred at least to not that, you need a few hundred. Let's say, the forest can absorb a lot more in terms of, and a lot more forests need that transformation. So how's been the reception on, let's say, the institutional investor side? And, of course, we're in a crazy chaotic time. It's the end of april 2025 and how is? How has the investor journey or the investor roadshow been until now?
Speaker 1:yeah, so I think there's a lot of new investor appetite for the sector. I think a lot of investors europe are coming from a point of view thinking about natural capital as a theme at the moment, and that includes agriculture and forestry as well as more pure nature-based solutions such as carbon biodiversity projects. So we're seeing more allocations being made by institutions into natural capital as a whole and within that, forestry is often the gateway drug to natural capital because it is a more well-established sector. People have been investing in forestry institutionally since the 1980s. The billions of dollars have been invested as track record. There's plenty of evidence of how it can perform. So I think it is sometimes an easier sell actually than agriculture for some institutions who are coming to the space for the first time.
Speaker 1:So we are seeing increasing allocations, increasing interest in the space. Yeah, so we are looking to raise a new, larger fund more like 200 million euro fund to invest in multiple European countries. So you want to keep investing in Ireland, which you really like, but also expanding to some other geographies as well within Europe, and we've looked all across Europe and looked at all the different national characteristics and tried to pick six or seven countries which have the right characteristics good forest resources. Ability to use continuous cover. Ability to generate returns yeah.
Speaker 1:And so a bunch of criteria, and so we have a very well-developed strategy for that. So that's going to be our focus next year to raise that fund. I think, when it comes to the continuous cover piece as well, what's so exciting about this is there's so much more evidence, new evidence available on the economic superiority of continuous cover compared to rotational forestry. That just didn't exist, you know, maybe 10 years ago. So we wrote a white paper on this topic in 2016,. We drew largely in research in the UK and Ireland. We've just published this new white paper in February of this year, where we draw on research from all around Europe, and I was personally even struck by just how compelling the story is Like. Put all the environmental benefits to one side, everyone agrees on that, but just looking at the pure economics the studies coming out of the UK, out of Ireland, out of Finland, out of Croatia, out of Germany showing that continuous cover, in almost all scenarios, is delivering a higher internal rate of return than rotational forestry.
Speaker 2:Even the most cynical investor doesn't care at all about walking through a forest with a mixed forest where you can see wildlife instead of everything mowed down underneath should be investing, should at least look at it, because there's no reason from the and this is only now imagine with more climate weirding because I think that's if you start to model that in, which is super difficult. But especially if you want a forest to be around forever, even in your rotational forest, yeah, you need to start looking at these weird storms that wipe out 3% of your forest overnight.
Speaker 1:Absolutely yeah. So, like the most hardcore Excel jockey who never sees the sun, you know, should be convinced. You know the evidence is there and I think you make a very important point. There's the kind of raw returns. You know that internal rate return you can get if you invest in forestry. Manage it well, get those cash flows in timber maybe some carbon, but then there's the risk of just returns those castros and timber maybe some carbon, but then there's a risk of just returns. Are you actually really understanding risk? Because if you go invest in the other systems rotational forestry there's all these hidden risks you probably aren't quite aware of yet around wind and disease and pests. That's coming down the track with climate change, whereas this alternative system gives you more resilience and adaptability to that. So I think that's harder to quantify, but maybe as important that long-term resilience to such a long-term asset like foraging. We're talking 100-year terms or longer.
Speaker 2:Yeah, and I think it's that sort of no regret one to invest in in a certain sense. We had a I'm blanking on the name who we had talking about institutional capital. We were talking more water cycles but, like, even if it doesn't plan out, let's say, the carbon credit side, or it doesn't pan out, uh to to be environmentally way better, which we've seen in this case, like we've seen the research, still it is a better bet to do certain things. And for institutional, especially long-term capital, you need to start and, of course, you're making models and scenarios. But we're living in such a weird world now in terms of climate, but also in terms of, of terrorists, in terms of and like europe needs to look at at, like the commission likes to say. What is it a strategic autonomy? Um, and yeah, we need to grow a lot more in general, um, on on, let's say, the larger continent, and so and just to jump, because europe has this huge untapped resource.
Speaker 1:you know, like I think we have about 180 million hectares of forest in Europe. About 45% of the continent is covered in woodland of some sort, so it's absolutely enormous. It's massive. Not managed, but, aliyah, the studies are showing that quite a lot of these forests are being underutilized or undermanaged. And actually the amount of harvesting is taking place it probably is, I think, about less than two thirds of what's possible effectively in European forests. And why is that is often because we have a very fragmented forest estate. So about 40% is owned by by states, that 60% is privately owned. Most of the private owners own very small blocks. So it might be a few hectares here, a few hectares there. There's an aging demographic.
Speaker 2:What do you do with that?
Speaker 1:People have left the countryside, moved to the city, so there's a lot of neglect. There's a lot of neglected forests. So just by coming in and actively managing the forest we already have today, we could massively increase wood flows which will go into construction and furniture and paper and packaging and bioenergy for that low-carbon bioeconomy. And then on top of that, of course, we need to plant more trees. So afforestation is a huge imperative. There is a lot of potential in Europe to plant new trees on marginal farmland which is coming out of agriculture production and we need to get behind that and promote it.
Speaker 1:I do think, again, continuous cover can help, because the opposition to more industrial rotational forestry there's a lot of communities of the opposition to more industrial rotational forestry there's a lot of communities don't want to see new forests growing. Up on the under, on the hillsides, in the backyards, they're often very opposed to forestry. They should be in love with their forests and we do think the continuous cover more diverse natural forests will get a lot more community acceptance, as you have a lot more support locally for people to plant new forests, you know, and so you get this sort of win-win of balancing the environmental immunity benefits plus the commercial timber production. That's what we need to get more healthy forests in the european landscape what is needed?
Speaker 2:I mean to ask the billion dollar question, but what is needed to unlock that? Like 200 million you're raising great, amazing seems like a small drop in the bucket and like what is what would be needed? What is blocking Europe to really put tens of billions, let's say, to work from different institutional investors? I mean, I'm not saying it definitely shouldn't be concentrated in one pool, but what is holding that sector back?
Speaker 1:Our strategy is very much an aggregation strategy. We are coming in, we're buying small properties, aggregating, building institutional scale portfolios and bringing that professional active management with a focus on continuous cover forestry. That's our approach and we think it could produce very good returns for investors that have a really strong impact. Now there are some limitations to how quickly you can deploy. There's probably a trade-off there because we're doing lots of small deals. Lots of you can deploy uh, you know there's probably a trade-off there. Um, uh, because we're doing lots of small deals, lots of small acquisitions.
Speaker 1:I mentioned we bought in 80 properties in ireland over like a four-year period. So it does take time. You need a really good ground game and that's why we're not trying to raise billions of euros right now. We're trying to, you know, a couple hundred um build up the systems on the ground and then start building portfolios. But there's no reason why that can't expand and grow and you can just keep aggregating, keep investing and keep deploying that strategy over time.
Speaker 1:So I think that's certainly one way institutional investors can get behind is aggregation strategies and bring in the professional management. But at the same time there's lots of ways we can help those private forest owners bring in active management and using continuous cover forestry. You know, cooperatives are one very powerful tool that's very well established in places like Denmark and Scandinavia, where these small owners coming together and forming cooperatives and they can access services and sell the timber in more efficient ways. I think there's a lot of potential there. So I think, yeah, we'll see a combination of institutional investment, but also private owners getting their own act together and coming together to get those efficiencies you know, as broader groups.
Speaker 2:Yeah, and how much I just struck me of the the natural regeneration piece of of continuous Cover forestry. How much of that is sounds almost too good to be true, like a lot of this work is done by nature or letting natural processes do most of the work, as you say in the white paper. When you present that to, let's say, a hardcore traditional rotational forestry people or even investors in that space, this sounds like almost too good to be true. Is that a difficult sell?
Speaker 1:I think there has been some amount of resistance in the conventional forestry sector to some of these ideas, for sure because a lot of people have been brought up in that more simplistic forestry by numbers way of thinking that we talked about earlier on. But at the same time there's such a body now of evidence coming out of the academic community that it's very hard to ignore. So I think it's just taking people to forests where we're using these practices, showing them the regeneration that we see.
Speaker 2:How does that go when you bring people there, like, how does it like even just we didn't do a really visual piece yet, which I like to do Just bring us there. Like, in terms of difference, if you go to one plot and then to yours, just how does it feel, smell, look differently, sound differently compared to yours? Just for people. This is an audio medium. We're filming it as well, but it's predominantly an audio medium. Bring us there. What does it mean to walk through one of those, compared to the neighbors?
Speaker 1:So I think in those early stages of transformation, where you're starting with a monoculture plantation, as we are in many cases in Ireland, and transforming probably for the first 10, 15 years years, maybe the differences aren't so great.
Speaker 1:You'll notice that the forest is more open, so it's been thin more heavily, so there's more light coming in, for sure, compared to maybe a conventional rotational forest nearby um.
Speaker 1:But then after about that, after the forest gets about 25, 30 years of of age, that's when you start to see the natural regeneration and that's when the differences become very apparent, because then you'll see a huge mass of new trees growing up from underneath. You know predominantly the same species that was there before, but you'll see diversity coming in naturally. Broad leaves will come in, you'll see a real mix of species coming in, whereas the conventional forest next door will just be kind of a dead understory with no light and just mature trees ready to be cut down. So that's when you see the difference. The regeneration phase is when it really kicks in and if you come back maybe another 40, 50 years after that, you'll hopefully see the transition to a fully irregular forest structure where you'll have those big trees, medium trees, small trees, multiple species all intermixed and it'll look completely different from your spruce monoculture. So again, it's a slow process but absolutely we can take people and show them forests at different stages of transformation, because they're there, right, yeah, they're there.
Speaker 1:And it is like night and day and you really can see what you're on ice. So I think that is a very powerful tool site physics and getting people out there. But there's always oh, that's just anecdotal, or does it really work? Is it economic? Or maybe some rich person subsidizing it? This is where you need the academic research as well people that you come in measuring trees, looking at the cost, the returns, the timber volumes and and that third-party verification rate that this, this is actually profitable. But I think that's what we're starting to see now really robust academic studies showing the economic superiority of the system, and we synthesize some of those in a white paper. But you can see in the footnotes the underlying research that underpins all those claims.
Speaker 2:Rich is fundamentally different than 2018, probably Like that kind of research, academic ones, which we're starting to see in regen. Of course, you mentioned the regenerative edge, like in agriculture, sorry, and also there we often think it might be a rich person subsidizing his or her ranch, or something like that. There must be. There must be, uh, like like a trick somewhere here um, do you use those images or anything when you don't bring people to the, to the forest yet, just to show the difference night and day? Just to make it, because you're going to present this in very uh, let's say, sterile, um, investor offices somewhere far away, like where, where the only wood probably is a table, hopefully, if you're lucky. And like, how do you? Or do you start with the finance? Like, how do you bring that? Bring them there, or bring them, bring this point home. That this is night and day differences, with all the financial benefits of it, but it's also just a fundamentally different thing. You shouldn't even call it the same product.
Speaker 1:Basically, yeah, I think it's highly visual. That's one nice thing about forestry. We have some wonderful images, we have videos in our forest, so I think it is highly visual and you can kind of tell people's emotions quite quickly. There's something about forests that really resonate with humans.
Speaker 1:We are effectively savannah dwelling forest dwelling species and there's something about being a forest which calms and relaxes and sort of nourishes the soul. So I think you want to try and capture some of that. And it's very hard to feel that way, to be honest, when you're someplace in like a spruce plantation, where all the trees are the same age, you're about to be cut down. But you can get a sense of that in those continuous cover forests because of that naturalness and diversity and the biodiversity. So I think there is that feeling. But at the same time you've got to show the numbers and we're very, very careful that we have very sophisticated models to underpin all our claims around the potential performance of these forests.
Speaker 2:What can the ag space learn about forestry? What do you think? And the other way around. But let's start with, let's say, in ag and food and the regeneration side, what can we learn from? It seems like forestry starts to attract significant institutional capital for different models, Like what it's not really happening yet in agriculture, Like what can we learn from yeah, from this journey?
Speaker 1:Yeah well, I think there's two things from this journey. Yeah well, I think there's two things. There's the level of institutional investment in the sector. So forestry versus agriculture, and forestry is certainly ahead. What do we learn from that?
Speaker 1:I suppose sometimes it's just a function of time. Forestry just started earlier, largely because of the quirk in the 1980s where a lot of US forest companies that were integrated started to sell off their forest holdings and to become more asset light and just become the processors of timber, and so there was a natural transfer of ownership and a pool of assets were created which institutions came into, and so that means you have this 40-year track record now of groups investing in forestry, and agriculture doesn't really have that. So I think sometimes it's just a function of time and as you have more agricultural funds, hopefully being successful, proving things out, then you know we may see that there probably is also the simplicity of forestry, like I think it is more. It is simpler than agriculture. It focuses on small number of markets.
Speaker 1:Trees are very forgiving. Like you can just you can ignore a forest for a year or two and come back and it probably everything's gonna be fine. You know, you can spend no opex and the trees keep growing. But you can't do that for a farm. Yeah, you know, if you go away for two years, come back it's a massive wheeze or your orchard has died.
Speaker 1:So just the op-ed animals have escaped yeah the opex intensity is so much higher in agriculture, and that puts a lot more risk too, because you can lose money in agriculture in a way that in forestry is hard to lose money.
Speaker 1:You just may not make as much as you thought, but you're very likely to actually be cash or negative. So I think it's also a veteran feature of the systems. In terms of the regenerative side, though, I think one thing forestry has been good at is establishing long-term measurement plots, so where people are trying different things and coming in and measuring every five years and stretching that out. You know, now maybe in the 20th or 25th or maybe 30th years, you are starting to get the longitudinal data on performance of the natural system under different approaches. Now we could always do it more and these are slow-moving systems, so you know. So you know, 30 years in forestry probably more like five years in agriculture, you could say but I think the foresters have been quite good at that of taking measurements and putting down data and and setting up these plots and we we discussed it with pre preinterview the role of technology.
Speaker 2:I mean, we both looked at a drone company lifting out trees, a skylogger or I'll put it in the show notes. But what do you see? Because these are long-term, very long-term investments and technology is moving very fast. Do you see? Because selectively harvesting would be great if you don't have to do that, but driving a gigantic harvester into a forest, obviously, and like these, the shifts on the horizon, are things that would be really interesting if technology could play a role in that. Even selecting the trees or measurement, of course, there's a lot of image recognition in going into ai at the moment, like there are a lot of things that seem to be, uh, almost there and of there, and if it's there five years or ten years, it makes a massive difference because you're going to be there for a while. What do you see as the role of this seems to be crazy. Technology boom. We're in for something as slow but as real and physical as forest.
Speaker 1:There's definitely a role for forest management systems, information systems because you do have a lot of data coming out of the forest. There's inventory data on how many trees, the size of trees, how they're growing and being able to put all that into an online tool and then you can optimize and see the impact of different management choices on that and effectively model out the future evolution of the forest and play around with that. We use some systems like that. I think that is very valuable in trying to overcome some of that complexity in a way using technology to simplify and as a decision-making tool, you could say, for the foresters in the ground. Definitely a role there On the ground itself.
Speaker 1:In some ways it's still quite old-fashioned, like it's very hard to get away from the value of forest. You're walking his or her forest and really seeing what's happening, understanding the interaction, seeing the different trees. Like our forest example in ireland they still individually hand mark the trees for harvesting with spray cans, you know. So they're going through and using judgment and skill to pick out which trees need to come out, which are going to stay in, and so you're hand marking trees and then the harvester, the machine comes in after that and then takes out the trees which have been marked, but the forester does the marking, so that's quite a boots on the ground kind of traditional process.
Speaker 2:Massive amount of data must be in the heads and, like the amount of tactility and knowing and understanding landscape, where it makes sense to keep a tree or not and which tree, that won't be maybe augmented to a certain extent. We need more of those, we need more people of those, and cloning probably is not an option, but there's an immense amount of observational skill and data going through somebody when they choose okay, this tree yes and this tree no, this tree next year or five years.
Speaker 1:Yeah, so it's really upskilling foresters and making it an even higher skilled profession. I think that's the direction to go and there can be some tools that help. Some technologies could help with that. But so far we haven't seen a better way of doing it than actually having foresters walk the forest and make those decisions. But I think the harvesting technology is has improved that.
Speaker 1:You know, the machines that are used now are very efficient. They can. They travel along dedicated extraction racks. They're not wandering through the forest, compacting the soils. They stay in certain areas. They can reach in, take cut trees, pull them out so you really minimize the impact on the soils. Maybe someday we'll get to drone harvesting, you know, in those, especially those harder to reach, steep slopes or maybe very boggy areas. That would be fantastic. It's not quite there yet, but you know in the future, who knows? So look like same with agri-culture we don't put the technology first, we put the principles and the thinking first and then, yeah, how technology can be a tool to just make things more efficient and reduce cost. That's where it's going to step in and be successful.
Speaker 2:Yeah, I know it's like walking the forest and walking the land as a farmer and as a forester probably is still, or is actually more so because we've been disconnected by that, by sitting in the tractor or by very not having to select at all because, you know, in 30 years or in two years we cut down this whole plot and that's it because it says so on the spreadsheet. We're still at risk in terms of price because you might cut it down in a very bad economic cycle in terms of timber prices and that's going to hurt quite badly. But, like I say, walking the land, observational, is something. Yeah, the best farmers we know and the best foresters you know for sure have that skill.
Speaker 2:There are just not so many of those and so, probably as your agriculture investments as well, like six, seven countries in Europe, finding those skilled operators that can do that and make sure you reward them and make sure they reward them and make sure they they keep doing that, because you need probably a few decades in in a forest area to understand, to really grasp a place. Okay, this tree needs to come out and this tree shouldn't. And this is how a forest could look like here in slovenia. This is how one could look like in poland, and this is how one could look like in ireland. Um, which is the upskilling foresters, is a non-sexy but very important investment.
Speaker 1:And we always say, when it comes to agriculture, the first thing we learn to invest in space. The hard part is not the acquiring of the land. The hard part is finding the great farmers, the operators on the ground. It's actually the same with forestry we put a lot of effort into forming partnerships with local forest management teams in the countries in which we operate who have those skills. I think the same principle applies. You almost need to start with the people and then sort of build a strategy around those people.
Speaker 2:Is it getting easier now in agriculture Just to take a sidestep before we wrap up, like in terms of attention for Regen, in terms of farmers working with larger funds, like yourself or other places, just to get good at Reg region farming at scale and have certain skills to communicate with investors and to do that, which is not always a given. Like amazing region, farmers might not be the best investment partners because they're not interested or needed to communicate with institutional investors, of course. Do you see? Is it getting easier or is there also just more competition in finding great farmers and land managers to work with you is as tricky as it was 10 years ago.
Speaker 1:I think the pool is growing. You know, every year there's more interest, especially from younger farmers, in finding regenerative, organic ways to manage land, Like I think, we often meet at Groundswell.
Speaker 2:that great conference that's held in the UK every summer Shout out to Alex and the team and come and see us, by the way. Yeah, we'll be there again the 2nd or 3rd of July, but that's grown from a small event.
Speaker 1:A few people said you're at a kitchen table today with like 6,000, 7,000 people, so it's just an indication of a lot of them are farmers, farmers trying to explore and find new ways of managing. So no, I think we're quite optimistic about the direction that we're moving in.
Speaker 2:I think it's a great moment. To wrap up, I want to thank you for coming on here and talk about forestry, something we don't do enough. We do quite a bit agroforestry, which we always get to receive really well. Our listeners love agroforestry and anything to do with trees. Now we're going to find out if that's also with productive trees, but not necessarily food productive.
Speaker 2:I think there are a lot of lessons there, from how to attract institutional capital and from how to transform existing assets, which we have to do all the times in agriculture as well, and why it balances so nicely, and, of course, by cycles which are way longer. It doesn't mean they're not interesting because you can harvest continuously, which I think we underestimate. If you look at the return, there's some nice graphs in the white paper of how interesting that can be as an investment. We often go for the models where we hope for a large IPO at the end or hope for an amazing sale or et cetera. Just hope for the timber prices to be high after 30 years.
Speaker 2:But in a much more chaotic world, probably a continuous harvesting and more quality, which gets to like an established market for quality, helps. We've seen it in olive oil, we've seen it in wine and in coffee, etc. Like you, if you don't have to debate a lot why you should get a better price. If you say I have larger locks, better quality, it pays. Everybody knows where you want to aim for and that makes makes a market just much more efficient.
Speaker 1:So thank you for coming on here and sharing maybe just one last comment, because wood is the most beautiful material. It's got so many uses, it's been part of human civilization for so many thousands of years. We're seeing revitalization, almost a rediscovery of the joys and the benefits of wood as a material Health. But I think it also puts more emphasis, then, on finding ways to commercially manage forests. There's a lot of attention being put on forestry conservation, protecting forests conservation, rewilding, and that's all good things. I think about a quarter of forests in Europe now are protected, are conservation forests, and it's good. We maintain old growth primary forest for those, you know, super high biodiversity values. But the other three quarters of our forest europe is is technically commercial forestry. I think that's where some great opportunities lie, where we can actually balance that type of production to produce what we need for our economies but also deliver on carbon storage, biodiversity, immunity, scenic values, you know. So that multifunctional forestry that's, I think, the exciting new discovery and that's what continuous cover delivers on.
Speaker 2:So, yeah, that's what we're trying to get behind with our investment euros at the moment, yeah, which opens and we're not going to go there a whole new rabbit hole of the the land, say sparing versus intensification, etc. Which we have constantly in agriculture, and that divide between nature and production. Like you sort of start with that in in the white paper, which is, yeah, let's say it got us into a lot of trouble. It doesn't really work. Nor nature doesn't stop at the fence line, if you even have a fence, and what you said, like 75 percent of forest isn't protected and we can even discuss the protected side, should it be grazed more? Should like, what, what like with management, some are so degraded that they are definitely not natural, whatever natural means. But let's say, 75 is managed and can be managed in a bite of a like, completely different way for biodiversity, like we should encourage that as much as possible and still harvest as similar, or more and better quality, better prices, that in terms of raw servers that can be not sprayed, not pulled out, not treated and have, let's say, a lot more life on it.
Speaker 2:The same discussion as in agriculture. Why would you intensify and kill all life possible if you can do another one which we've been arguing for, of course, for decades, where you can have a lot of those benefits and harvest similar amounts. Nothing exactly the same, maybe some years less, some year more, but at least the amount of service area where you have just more insects, more life, et cetera and less poison is so much bigger. But it's a very philosophical one. Like do we believe we can separate that or not? Like where does nature stop or not? Of course it doesn't stop anywhere. Can you still produce on these things? Is it just a fairy tale? And you're saying there's a lot of academia behind now? Like you can produce similar? Like that's not a discussion, but it's a tricky one because we have that narrative in our head. Like nature and production separate, let's not mix the two.
Speaker 1:Yeah, I think the trade-offs could be harder in agriculture between those two things nature, production. I think within forestry they naturally come closer together. Like you can find this optimized position where you are delivering quite well for all those dimensions of timber, carbon, but diversity and environmental benefits. So I think that's what makes forestry so exciting, it's a more natural system that you're just nudging.
Speaker 2:Is it because of carbon? Is like climate is hitting harder on the traditional way. Is it because it's forestry? Is it like? Why is that easier, Seems?
Speaker 1:easier. I think it's probably in ecological terms. It's just one step closer to a natural system. You know, compared to an agricultural system like a forest, a soybean system, even a continuous cover forestry which is managed for commercial timber production is still, in terms of structural biodiversity terms, you know, not so far away from a completely natural, let's say, primary forest. It's never going to be as good in terms of you know those functions, but it's not too far away. So I think it's adjacent to, let's say and that's what makes forestry so exciting that we can really balance those dimensions, I think, which would be great to have adjacent to the protected forest just as a mixed zone.
Speaker 2:No buffer sounds wrong, but just to have it almost a natural zone to the natural forest. And again, I don't think they exist to a certain extent in Europe, whatever natural means, but to have them surrounded by these kind of forests would be the prime area, because then you have just a much bigger, closer to natural, as close as natural as possible forest as you can.
Speaker 1:And just one tidbit there was actually a great. They saw storehead of forests in england where they compared a part of that forest which we actively managed continuous cover versus another part which is just being basically protected and not be managed at all. And the part that was being more actively managed had higher biodiversity value, so more bird species were recorded. Other indicators were higher, so that was fascinating. Now you're probably comparing it. That protected area was a, as you alluded to, a not particularly healthy forest in the first phase, but that's all the conditions we're in now, so active management is going to actually enhance biodiversity at times.
Speaker 2:Which is such a philosophical shift we need to make into many ways like active, almost keystone management. We're getting to a very philosophical space like are we the active, positive keystone species or not? Like in many cases, we're not, but we could be. We're showing you if we choose to and we don't have to sacrifice necessarily financial returns which is always nice to walk into, let's say, offices in London and other places this makes sense financially if you have the patience and time. Perfect. I think that's a great way to wrap up. Again, thank you for coming back. We're doing a nice rhythm in terms of coming back on here. Thank you for your support of the podcast as one of the Field Builder Circle leaders and, of course, thank you for the great work you're doing. You're an absolute pioneer in the space and again doing that not only in ag but also with forestry thanks and great to have you on.
Speaker 1:It's the last white paper for a while we produce, but if anyone wants to see it it's on our website. I highly recommend you download and have a read. So thank you to all the listeners.
Speaker 2:I really enjoyed it. Thank you for listening all the way to the end. For show notes and links discussed, check out our website investing in regenerative agriculturecom slash posts. If you like this episode, why not share it with a friend? And get in touch with us on social media, our website or via the Spotify app, and tell us what you liked most and give us a rating on Apple Podcasts or Spotify or your podcast player. That really really helps us. Thanks again and see you next time.
