TEAK STING ?
By. JULIO CESAR CENTENO
Intrigue and manipulation of information, influence and power,
seem to be at the core of the unfortunate controversy taking place
in The Netherlands, regarding public investments in teak
plantations. One particular case has been exposed and brought to
the public attention, through TV and press coverage, involving a
large insurance company by the name of OHRA, the Ministries of
Finance, Agriculture, and International Cooperation of The
Netherlands, and the Dutch branch of the World Wide Fund for
Nature, among others. The case has been in court on several
occasions, and has been brought to the attention of the Code of
Ethics Committee on Advertising [Reclame Code Commissie]. The
Dutch Parliament has summoned the Ministers of Finance and
Agriculture to answer questions about it. It refers to plantations of
teak established in Costa Rica by the Dutch owned company FLOR
On February 5, 1996 I posted a message on Internet highlighting
key issues related to this project, with the title "TEAK
CONTROVERSY FLARES UP IN THE NETHERLANDS". The
interest on the subject has been massive, mostly asking for further
details on the subject. Many respondents are surprised that
something of this nature could happen in The Netherlands, and not
in "...a backward developing country, devoid of forestry institutions
and qualified forestry professionals", as one message puts it.
Others express concern for the possible consequences for WWF.
To at least partially comply with requests for further information
and clarification, I have made an attempt to organize answers to
posed questions on the key issues involved. Further details and
information can be found in the original report, as well as through
direct contact with to Flor y Fauna, OHRA, WWF-Netherlands, the
Ministry of Agriculture of The Netherlands, or the Dutch Embassy
in Costa Rica.
WHY AM I INVOLVED?
By early 1993 there was considerable concern within the WWF
family for the involvement of one of its members, WWF-
Netherlands, in this project. Serious reservations were presented
by at least two prominent members of the family, WWF-
International and WWF-US. The different parties involved at the
time considered they needed a reliable and independent
assessment of the economic dimensions of the project, and
requested my assistance to that effect.
Out of consideration for the serious nature of the findings and
conclusions of that assessment, I made a specific effort to provide
Flor y Fauna, OHRA and WWF the opportunity to question them,
and to provide evidence to support their arguments. This was done
through the presentation of a Draft version of the report, in August
of 1993. The final report is dated December 22, 1993, and was
presented only after a full reply was received in writing through
WWF-Netherlands. It's title is: ECONOMIC ANALYSIS OF FLOR
& FAUNA'S TEAK PLANTATIONS IN COSTA RICA.
The report was kept confidential for two years, until late 1995,
when reporters from the most popular TV news program in The
Netherlands, NOVA, found access to it. In a subsequent TV
broadcast, and through other media, OHRA, Flor y Fauna and
WWF-Netherlands have openly made remarks about the report.
None of them seemed constrained by its confidential nature. Copies
of the report have been distributed to newspapers and other
interested parties, and several references to it have been reported
in the press. The report is now in the public domain.
It seems fair that I should now have the opportunity to present my
point of view on the subject. This is specially so, since there are
deliberate and consistent attempts by the other parties involved,
not only to denigrate the report and its author, but to maintain a
situation potentially damaging to the image and credibility of
WWF, and to the interest of the individual private investors in this
project. It is also a situation damaging to the forestry profession, to
the prospects of plantation investments in the tropics, and to the
prospects of certification as a mechanism to improve forest
management throughout the world.
FLOR Y FAUNA started planting teak in the province of Alajuela,
northern Costa Rica, in 1989. By 1992 it had planted 550 hectares.
The economic ownership of the trees was sold directly to investors
in The Netherlands by Flor y Fauna.
In 1993 a total of 750 hectares were planted. These plantations are
referred to as Teakwood VI. WWF-Netherlands' participation is
formally restricted to Teakwood VI, although it is generally
assumed that its endorsement includes all of Flor y Fauna's
A total of 1,600 trees are planted per hectare. Thinnings are
scheduled at the ages of 8, 12, and 16, with a final clearcut at the
age of 20. Each thinning would remove approximately 400 trees,
with corrections for possible losses due to mortality, termites, and
In the case of Teakwood VI, economic ownership of the trees was
sold to OHRA, a large insurance company in The Netherlands.
OHRA in turn sold rights to 85 percent of the revenues from the
harvests at years 12, 16 and 20 to the public. These rights were
fragmented in contracts on one-eighth of a hectare, and tied to a
life insurance policy which guarantees the return of the net
investment made. The public endorsement of the project by the
World Wide Fund for Nature [WWF-Netherlands] added a taste of
environmental and technical reliability to the investment.
Using mass media advertising and mail delivered brochures, Flor y
Fauna, OHRA, and WWF encouraged people in The Netherlands to
invest in the project, appealing not only to the Dutch public
concern with the environment, and to the need to save tropical
forests from destruction, but also to highly rewarding rates of
To join OHRA's Teakwood scheme, investors make a downpayment
of 2,597 dollars [4740 DFL], and 19 yearly payments of 296 dollars
each [540 DFL]. The total net payments is therefore equivalent to
US 65,750 dollars per hectare [exchange rate as of June 11, 1993:
1.825 DFL per US dollar].
In return, policy holders receive the economic rights to 85% of the
revenues from the sale of the timber derived from harvests at ages
12, 16 and 20 on one-eighth of a hectare.
DISTRIBUTION OF REVENUES
Nearly 85 percent of the downpayments made by investors on
Teakwood VI is transferred to Flor y Fauna, 11.4 percent is
retained by OHRA, and the remaining 3.6 percent goes to WWF-
Netherlands. This represents an initial income to Flor y Fauna of
13.2 million dollars, 1.8 million dollars for OHRA, and 575,250
dollars for WWF-Netherlands.
The cost of establishing and maintaining the plantations for 20
years, plus the cost of harvesting and transportation of the logs to
a nearby processing plant, is estimated at US$ 5,000 dollars per
hectare. The total cost to Flor y Fauna is thus estimated at 3.75
million dollars in 20 years.
The 19 yearly payments made by investors are retained by OHRA.
The revenues from the first thinning, at the age of 8, is reserved
for Flor y Fauna.
The revenues from the harvests at ages 12, 16 and 20 are
distributed as follows:
85 per cent to the investors
5 per cent to OHRA
5 per cent to Flor y Fauna
5 per cent to WWF
In 1993, investors were promised a net return ranging from a
minimum of 600,000 dollars per hectare, to a maximum of 1.45
million dollars the hectare.
The range of expected returns is due to the natural difficulty in
estimating the exact amount of commercial timber to be harvested,
and the price at which it could be sold. Nevertheless, investors
were assured that the amount of commercial timber the
plantations would produce ranged from a minimum of 40 cubic
meters per hectare per year, to a maximum of 48 M3/ha-yr. The
price would also vary from a minimum of US$ 720 per cubic meter
for the round timber harvested at the age of 12, to a maximum of
2,097 dollars the cubic meter for the round timber to be harvested
at year 20. These projections guaranteed the financial returns
One of the fundamental conclusions of the so called "Centeno
report" is that yield and price projections are highly unrealistic,
reverting in equally unrealistic rates of return. Making the
necessary corrections on yield and price projections, OHRA should
make a profit of about 85 million dollars from its involvement in
this project, and Flor y Fauna 72 million dollars, including in both
cases a 40% tax deduction on interests. WWF should receive about
14 million dollars, free of tax.
Each individual investor should expect to receive about US$ 30,510
[per contract on one-eighth of a hectare]. Should investors place the
income from the project in a bank, at 7% interest and 40% tax
deduction on interest, total income would amount to US$ 33,100 at
the end of the 20 year cycle. The small difference between the net
projected income and the income with interest is due mainly to the
fact that two thirds of the investors revenues come from the final
harvest, at year 20.
According to Flor & Fauna, the plantations would behave within
relatively normal yield ranges until the age of 8, with an expected
production of 15 to 18 cubic meters per hectare per year. However,
the company expects each thinning to have a very unusual and
pronounced effect on yields, as shown in the table below, reaching
as much as 70 to 80 M3 per hectare per year at the end of the
AGE RANGE M3 PER HECTARE PER YEAR
1 TO 8 15 - 18
8 TO 12 40 - 50
12 TO 16 59 - 71
16 TO 20 68 - 82
NOTE: Table composed from the information supplied by Van
Rossum & van Veen, a formal representative of Flor y Fauna, to
WWF, dated April 08, 1993, and the Dutch version of the
company's brochure, supplied by WWF-Netherlands via fax on 17-
02-93. For details see page 11 and 12 of report.
The unusual behavior expected by FLOR Y FAUNA, OHRA and
WWF-Netherlands from these plantations, both in the magnitude
of the average expected yields, and in the effect of each thinning,
could not be clarified by any of the parties involved during the
assessment of the project, or ever since the final report was
presented at the end of 1993.
The projections on timber yields expected by FLOR Y FAUNA,
OHRA and WWF-NL from the teak plantations in Costa Rica, as
well as the expected effect of each thinning, contradict all the
technical information available in specialized literature on teak
plantations that could be surveyed, as well as recorded practical
experience with commercial teak plantations accumulated in Asia,
Africa and Latin America for over a century. Although specifically
requested, neither the company nor WWF-Netherlands could
provide a single reference where anything similar has been
The report thus highlights:
"The expected yields are unjustifiable, reverting in equally
unjustifiable expectations on the financial returns to be obtained"
"The potential consequences should not be under-estimated.
Investors are led to believe they will receive returns which are
highly unlikely. This may be considered fraud"
"It would be convenient to clarify if making exaggerated claims
such as those referred to in this report is considered a violation of
laws in the Netherlands. Should that be the case, all parties
involved would be affected, including WWF. It is a technical
organization expected to be aware of these discrepancies,
particularly in the eyes of investors and the general public. WWF's
endorsement of this operation may justifiably be considered an
independent and reliable assurance that the company's claims are
in fact valid. WWF's integrity and prestige would be affected if it
does not warn those most likely to loose if such projections are in
fact exaggerated. As will be shown later, those most likely to loose
are the investors involved"
"Individual investors should expect to receive net returns of US$
30,510 each [DFL 55,680, at an exchange rate of 1.825 per dollar].
Expected returns to investors are about 40 per cent of the most
conservative projections made by the company, and only 17 per
cent of its most ambitious scenario. These discrepancies may have
legal implications, in which WWF would be involved..."
Price is the second most important variable affecting expected
returns. Here again we found unusually high expectations, which
could not be clarified or justified by the parties involved.
The company offered three possible price scenarios. Under its first
and most conservative scenario, the price of teak logs is expected to
increase 4 per cent annually over the next 20 years. The most
ambitious scenarios assumes a price increase of 8 per cent per year
during 20 years. The company thus expects prices ranging from
600 to 800 dollars per cubic meter for 8 year old poles, and as
much as 2,100 dollars per cubic meter for 20 year old teak logs.
The base price was taken as that of high quality logs. That is not
what will be produced in the first three harvests, and possibly not
even at the final harvest. Neither should prices for this type of
output be expected to develop so consistently and steeply during
the life span of the project.
COSTS VS PRICES
Based on information provided by the company, data collected on
site, and factual information from other plantations in Costa Rica,
the total cost of the operation was calculated at nearly 5,000
dollars the hectare during the 20 year rotation, including the value
of the land. But the economic ownership of the trees on each
hectare, excluding the land, was sold to investors for a net
payment of 65,750 dollars. The opportunity value of such an
investment could be estimated at 112,200 dollars, at 7% interest,
including a 40% tax on yearly interests.
There is nothing illegal with the huge gap between costs and
prices. However, there are other Dutch teak plantation projects,
similar to Flor y Fauna, who charge considerably less for the
economic ownership of the trees. In some of these cases, however,
yield and price projections are far less exaggerated, reverting in
considerable lower rates of return. It seems therefore, that despite
the larger investment to be made, the preference of investors for
Flor y Fauna is largely based on the far higher returns offered. The
attached life insurance policy, and the support of WWF, provide an
additional sense of security to their investments.
However, the rates of return offered to investors do not commit
Flor y Fauna, nor OHRA, in any way. The actual returns which
will be received by investors depend completely on the actual
amount of timber harvested, and on the price at which it is sold.
Actual returns will probably be quite similar to those offered by
companies who did not exaggerate their claims, and which
therefore lost competitiveness in the eyes of investors.
DISTRIBUTION OF RISKS
The Flor y Fauna project has been structured in such a way that
the return to investors is far more sensitive to miscalculations of
both yield and prices, than the return to Flor y Fauna and OHRA.
"Should yield and price projections fail, as seems highly probable,
it will be the return to investors which would suffer most severely.
This poses technical, possibly legal, and even ethical implications,
from which WWF should be shielded" Page 31 of report.
Two thirds of all returns to investors depend on production at the
very end of the cycle, which in turn depends on unrealistically high
yield and price projections. However, expected returns to Flor y
Fauna and OHRA depend on only about 10 per cent from the final
harvest. The risk of failing to achieve Flor y Fauna projections on
yield and prices has been largely transferred to individual
The report thus adds:
"The possibility that Flor y Fauna may fail to reach its own
projected yields and prices will affect investors most severely. The
expected returns to OHRA and Flor y Fauna are far less sensitive
to the achievement of those projections. This adds an ethical
dimension to the concerns expressed earlier for the gross disparity
between expected returns to investors, and those claimed by Flor y
COURT CASES AND PARLIAMENTARY HEARINGS
Concerns with the nature of this investment scheme have been
brought to the attention of the judicial system in The Netherlands,
the Code of Ethics Committee on Advertising, and the Dutch
Parliament. In the cases considered in court, legal representatives
of Flor y Fauna and OHRA have produced as evidence an official
report from the Ministry of Agriculture, dated December 28, 1993.
This government document, entitled DE TEAK PLANTAGEN VAN
FLOR Y FAUNA S.A. IN COSTA RICA, Dec. 28, 1993, has assured
the court that the projections on yields and prices used by Flor y
Fauna are correct, despite the overwhelming evidence to the
contrary. It indicates that such projections are in fact rather
conservative. According to forestry experts from the Ministry of
Agriculture, the expected yield of commercial timber should have
been calculated based on a minimum of 1057 cubic meters per
hectare, equivalent to a minimum mean annual increment of 53
The same report has been used to defend Flor & Fauna's in the
Dutch Parliament, this time by the Ministers of Finance and
Agriculture. "There is no doubt concerning the correctness of the
conclusions from the Ministry's mission" reads the excerpt from
the Ministers declaration in Parliament on December 20, 1995. The
mission they refer to is the one concluding in the official report in
The validity of such appreciations has been maintained for over
two years, based not only on the fact that the report was produced
by forestry professionals from the Ministry of Agriculture. The
Ministry's mission to the plantations in Costa Rica was joined by
representatives from the Rainforest Alliance, an environmental
NGO based in the USA, and self appointed certifier of forest
management operations. It also included a representative from
DGIS, a member of the Board of Directors of WWF-Netherlands,
and a court bailiff.
The findings of the Ministry's report are based on measurements of
tree diameters recorded by the court bailiff on November 23, 1993.
A total of 40 trees where measured, and dutifully recorded for later
By the time these measurements were taken, more than 2 million
trees had been planted. It somehow passed unnoticed that these
measurements were taken without the use of an acceptable
sampling method, which would have rendered some statistical
significance to the findings. Neither is any reference made in the
report to the statistical variation of the measurements. Nor to the
corresponding height of the trees measured, or the stocking they
The court bailiff somehow further noticed that "thicker stems were
predominantly present" in the plantations. And although no
mention is made of height measurements, the bailiff reports an
average height for the trees of "around 16-18 meters" for
Teakwood 1, established in 1989, "around 8 meters" for part of
the plantations of 1990 [Teakwood 3], and "around 9-10 meters"
for the plantations established in 1991 [Teakwood 4].
Apart from the lack of professional methodology to these
measurements, or estimates, these figures refer to plantations
which represent about 40% of the total area planted by the time
the measurements were made. This represents an incomplete and
statistically insignificant measurement of one tree in 50,000.
>From such unusual and statistically doubtful measurements, yield
tables were prepared. These in turn concluded in production
estimates with a minimum of 1057 M3 per hectare for the total of
Flor y Fauna's plantations, equivalent to a minimum mean annual
increment of 53 M3/ha-year.The parties involved seem particularly
incompetent with regard to calculations of plantation yields.
Nevertheless, this is the core of what Flor y Fauna, OHRA and
WWF-Netherlands have produced as evidence for the validity of
their projections. It has been accepted as valid in a court of law, as
well as in the Dutch Parliament. This alleged "evidence" has been
considered far more solid and credible than over a hundred years
of recorded scientific and technical information on the behavior of
teak plantations, under a wide variety of conditions in tropical
countries throughout the world.
THE FSC CERTIFICATE
During at least 4 months, OHRA and Flor & Fauna have publicly
claimed that their plantations in Costa Rica have been certified as
"well managed" by the Forest Stewardship Council. This claim has
been published in full page adds in the newspapers with the
highest circulations in The Netherlands. It has also been printed
on promotional brochures, and on letters sent to potential
Similar statement was made in a court of law by representatives of
Flor y Fauna and OHRA on December 28, 1995. This claim has
been maintained even by WWF-Netherlands, as reported in "De
Gelderlander" and in "Het Brabants Dagblad" as late as February
The Forest Stewardship Council [FSC] does not have the mandate
to certify forest operations anywhere. It is an organization set up
to accredit certifiers. The certificate issued to Flor & Fauna comes
from the Rainforest Alliance, but the advertisements in question
avoid any reference to this organization. The Rainforest Alliance
has not been accredited as an official certifier by the FSC. These
are fictitious statements, meant to mislead the public opinion and
the court of law where they have been presented.
The net financial return to WWF was estimated by Flor y Fauna at
a minimum of 27 million dollars, and a maximum of 64 million.
Should this money be place in a bank, at 7% interest, free of tax,
the total income for WWF would range from 32 to 73 million
When corrections are made to the unusual yield and price
projections promised by Flor y Fauna, WWF net income could be
estimated at 11.3 million dollars, or 14.5 million with interest, free
WWF allows it name to be used in advertising and other
promotional material, as a sponsor and supporter of the project.
WWF renders technical and environmental credibility to the
project, an important asset in competition for investments.
When questioned about the nature of its involvement by a local
paper in Costa Rica [The Tico Times, August 1994], the Director of
Conservation of WWF-Netherlands, Wim Braakhekke, explained in
a written declaration, dated August 30, 1994:
"The fact that an independent foundation was set up [Stichting
Continuiteit Flor y Fauna] to guard the interest of the investors
was essential to WWF-Netherlands before becoming involved in the
It is clear now that this foundation was not created to defend the
interest of investors. Its board of directors is formed by the owners
of Flor y Fauna, OHRA, the firm Van Rossum & van Veen [a
representative of Flor y Fauna] and a member of the board of
1. Investors in the Flor y Fauna plantation project in Costa Rica,
in which OHRA and WWF-Netherlands are formally involved, were
led to believe they would receive returns on their investments
which are highly unlikely. This may be considered fraud.
2. Flor y Fauna and OHRA have claimed for months that their
plantations have been certified as well managed by the Forest
Stewardship Council. This claim has been presented to potential
investors through the press and other promotional material. It has
also been presented in a court of law. These claims are misleading
and contrary to facts, adding to concerns that we may in fact be
facing a possible case of fraud.
3. The evidence provided in a court of law, in the Code of Ethics
Committee on Advertising of the Netherlands, and in the Dutch
Parliament, to justify the projections on yields on which Flor y
Fauna's returns are based, lacks technical and statistical
significance. The pronounced discrepancy with existing technical
and scientific information, and the contrast with fundamental
professional knowledge and practice, may imply a case of forged
4. A thorough and transparent review of this project should be
undertaken as early as possible, mainly to safeguard the interest of
the individual investors involved.
5. Effective action should be taken to safeguard the credibility in
the Dutch forestry profession.
6. Effective and immediate action should be taken to safeguard the
interest and credibility in the World Wide Fund for Nature.
7. There is an urgent need to encourage investments in
commercial and other type of tree plantations in the tropics.
Nevertheless, it is important to ensure that such initiatives respect
basic environmental, social and economic principles.
8. This case may serve to underline the need for a proper
regulatory framework for investments in tree plantations in the
tropics, and the need for credible and reliable mechanisms for the
certification of forest management throughout the world.
Julio Cesar Centeno is a forestry specialist from Venezuela from
whom WWF requested an economic analysis of Flor & Fauna's teak
plantations in 1993. He was one of the key negotiators of the
International Tropical Timber Agreement, UNCTAD, Geneva,
serving as spokesman for tropical countries. He served as forestry
advisor to the Secretariat of the United Nations Conference for
Environment and Development [UNCED 92], and as Director of the
Latinamerican Forestry Institute between 1980 and 1990. He was
invested by Prince Bernhard of The Netherlands with the Golden
Ark Award for his work in the forestry sector. He serves as a
member of the Governing Board of SGS-Forestry in Oxford, United
Kingdom, and as acting vice-chairman of the TROPENBOS
Foundation in The Netherlands.
Fax: INT + 58-74-714576