Julio Cesar Centeno, Ph.D.

Why am I involved?
Distribution of revenues
Yield projections
Expected yield
Costs vs prices
Distribution of risks
Court cases and parliamentary hearings
The FSC certificate


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 WorldWide Fund for Nature [WWF], 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 Y FAUNA.

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.


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. Its 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 plantations.

A total of 1,600 trees are planted per hectare. Thinnings are scheduled at the ages of 8, 12, and 16, with a final clear-cut at the age of 20. Each thinning would remove approximately 400 trees, with corrections for possible losses due to mortality, termites, and other causes.

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 WorldWide 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 returns.


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 are 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.


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, are 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 mentioned above.

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 cycle.




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 recorded.

The report thus highlights:

Page 14: "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"

Page 15: "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"

Page 30: "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 assume 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.


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, provides 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.


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 investors.

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 Fauna".


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 PLANTAGES 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 M3/ha-yr!

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 question.

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 use. 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 represented.

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 that 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.


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 ads in the newspapers with the highest circulation in The Netherlands. It has also been printed on promotional brochures, and on letters sent to potential investors.

A 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 *9, 1996.

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 dollars.

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 of tax.

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 project"

Nevertheless, 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 WWF-Netherlands.


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 evidence.

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 WorldWide 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 Latin-American 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. top

FEBRUARY 19, 1996