Julio Cesar Centeno, PhD
March 12, 1996

Observations on the report presented by the Centro Cientifico Tropical of Costa Rica
Preliminary conclusions
Closing remarks

In a report recently released in The Netherlands, a world record on the production of commercial teak timber is reported, at the plantations established by the company Flor y Fauna in Costa Rica. The oldest of these plantations is only seven years of age. The Centro Cientfico Tropical of Costa Rica [CCT], based on information supplied by Flor y Fauna, has concluded:

"the average growth-results of the plantations are higher than ever recorded in scientific literature in or outside Costa Rica"

"the expected yield figures, within a reach from some 400 M3 and 800 M3, are in accordance with the present growth developments".

The figures refer to the expected production of commercial timber per hectare, in teak plantations with a projected 20-year rotation period. The figures are equivalent to a mean-annual-increment [MAI] of 20 to 40 cubic meters per hectare per year.

The report was commissioned by Flor y Fauna. I have had the opportunity to review an abridged version of the report [9], collated from parts of the original, and apparently distributed to the media by the Dutch insurance company OHRA, at a press release on March 04, 1996. Its unusual nature and findings motivate this posting.


Flor y Fauna is a Dutch owned company, which has established approximately 3000 hectares of teak plantations in the province of Alajuela, Northern Costa Rica, starting in 1989. Flor y Fauna sold the economic ownership of the timber to be produced from most of its plantations to the insurance company OHRA, who in turn sold it to over 13,000 individual Dutch investors, tied to life insurance policies.

I carried out an evaluation of this investment scheme in 1993, following a request by the World Wide Fund for Nature [1]. I was supplied with documentation from the firm Van Rossum & Van Veen, a representative of Flor y Fauna, according to which it was OHRA's policy to guarantee investors the return of their net premiums paid, at the end of the 20-year cycle. According to Van Rossum & Van Veen, the guaranteed return might also include a small interest allowance "...of some 1.5 percent annually".

It is argued that what has been placed in the market is an insurance product. Nevertheless, it is also clear that the life insurance policies are indivisibly tied to the investment in the teak plantations. They have also been publicly promoted and advertised with the character of an investment product.

The insurance product seems now to have a guaranteed minimum internal rate of return of only 0.5 percent. But these policies were marketed with specific reference to far higher rates of return, turning them into particularly attractive financial investments. According to documentation provided by Van Rossum & Van Veen to WWF, Flor y Fauna promised investors internal rates of return from 16 to 22 percent [1]. In its sales brochures, OHRA promised investors rates of return from 15 to 25 percent. These rates of return were based on unrealistic projections of timber yields, and exaggerated expectations on the prices at which the timber could be sold [1].

Flor y Fauna has been involved in legal complications and public scandals, due partly to its exaggerated claims on expected rates of return. The insurance company OHRA, Flor y Fauna and WWF-Netherlands encouraged the Dutch public to invest in these teak plantations, partly based on the claim that average timber yield would range from 40 to 48 cubic meters per hectare per year. At the time of my evaluation of this case, the company expected to harvest an average of 800 to 960 cubic meters of commercial timber per hectare, under 20 year cycles [1].

These projections have been the cause of serious problems for the company since 1993. Flor y Fauna has been taken to a court of law, where it presented a document stating that it was not imaginary that OHRA's wildest dream [960 M3 per hectare] might be surpassed by a factor of 2, with production reaching over 1810 cubic meters per hectare, equivalent to a mean annual increment of over 90 cubic meters per hectare per year [5].

More recently the case has been brought to the attention of the Code of Ethics Committee on Advertising of The Netherlands, partly due to the false public claim that Flor y Fauna's teak plantations have been certified as "well managed" by the Forest Stewardship Council.

A report by the Ministry of Agriculture of The Netherlands has been repeatedly presented as evidence that the company's projections were, in fact, rather conservative [6]. According to this report, the minimum expected yield should be 53 M3 per hectare per year. The Dutch Parliament has questioned the Ministers of Agriculture and Finance about the validity of such projections, and their implication to investors.

Flor y Fauna has had serious difficulties to substantiate its projections on financial returns promised to investors. Teak is a high-quality tropical timber, which has been grown in plantations for over a hundred years. In tropical America, on good soils, with favorable environmental conditions, and under good management, the production of commercial timber is known to safely range between 12 and 18 cubic meters per hectare per year, in the form of logs. There are plenty of references in scientific and technical literature, and information from commercial plantations throughout the tropics, supporting the safety and validity of this range. Exceptional cases have been reported where timber production has reached 20 to 30 percent above the high end of this range, during the first years of the rotation.

Flor y Fauna's teak plantations have been officially endorsed by the World Wide Fund for Nature [WWF-Netherlands]. This endorsement has provided exceptional credibility to the operation within the public opinion. In 1993, the World Wide Fund for Nature asked me to visit the plantations, and prepare an analysis of its economic dimensions. The final report was presented in December of 1993, after Flor y Fauna, OHRA and WWF- Netherlands were given the opportunity to question its findings, and provide evidence to support their allegations [1]. One of its conclusions, relevant to the present discussion, reads:

"The expected yields are unjustified, reverting in equally unjustified expectations on the financial returns to be obtained. Investors are led to believe they will receive returns which are highly unlikely. This may be considered fraud".

The fundamental findings of the 1993 report are [1]:

a] Individual investors in the Teakwood project were led to believe they would receive highly unlikely rates of return.

The rates of return projected by Flor y Fauna were based on two fundamental variables:

  • The yield of timber the plantations could provide.
  • The price at which the timber from these plantations could be sold in the form of logs.

b] Rates of return were based on the unrealistic assumption that the plantations would produce from 40 to 48 cubic meters per hectare per year during the 20-year rotation period established for the project.

Many investors seem to have signed contractual agreement at the time this claim was effective.

c] Flor y Fauna based its rates of return on equally unrealistic projections of the prices at which teak logs of 12, 16 and 20 years of age may be sold. At the time of my assessment, the company expected as much as 830 US dollars per cubic meter of 8 year old poles, and 2,100 dollars per cubic meter of 20 year old logs.

d] The risk of failing to achieve projected returns was largely transferred to individual investors. Two thirds of all returns to investors depend on production and prices at the very end of the 20-year cycle. While returns to Flor y Fauna and OHRA depend only about 10 per cent from such a harvest.

Flor y Fauna and OHRA seem to have partly recognized the validity of these findings, since the yield range has been significantly reduced. Expected yields seem to now range from 20 to 40 cubic meters per hectare per year. The average expected yield has been drastically reduced, from 44 to 30 M3/ha-yr, but remains unrealistic. Investors are still led to believe they might receive highly unlikely rates of return.

Parallel to the reduction of the average expected yield, there has been an unusual and significant increase in the range of such values. Originally the range was equivalent to 20 per cent of the lower estimate. But now it has grown to 100 percent of the lower estimate. The latest yield estimates seem to range between "some 400 and 800 M3" per hectare, equivalent to mean annual increments of 20 to 40 M3/ha-yr [9].

These values might not have been different if they were due to possible financial and legal implications. Investors were promised they should expect rates of return based on a minimum yield of 40 M3 per hectare per year. Deviation from such figures at this stage could lead to legal complaints, implications of fraud, and possible huge financial returns to investors. This problem seems to have been dealt with by simply sinking the original lower estimate [40 M3/ha-yr] to half its original value, making it barely touch the higher end of normal yield estimates for teak. While at the same time, holding the upper end of the new yield range within promised estimates. The result is a highly distorted and exaggerated range of yield values, which reflects the insecurity and lack of reliability in what is, in fact, offered.

At least three-quarters of the range of Flor y Fauna new yield projections are still beyond what should be expected from teak in the tropics, even considering the best soil, climatic and management conditions registered to date in actual practice. One of the most recent reports on yields from teak plantations in Costa Rica was published by CATIE [Centro Agronmico Tropical de Investigacin y Ensenanza] in 1995 [7], based on information collected by CATIE itself, from 24 different sites in the province of Guanacaste. The province of Alajuela, where Flor y Fauna's plantations are established, is contiguous to Guanacaste, in Northern Costa Rica.

CATIE is one of the most respected and credible forestry and agriculture research institutions, not only in Costa Rica, but also in Latin America. It has solid international links, among others a structural cooperation with the Agricultural University of Wageningen in the Netherlands. Its report concludes in a statistically significant mean-annual-increment of 12 to 18 cubic meters per hectare per year, as is normally the case.

Another recent report on teak was published by the Ministry of Forestry of Myanmar and the Food and Agricultural Organization of the United Nations, FAO, and refers to a paper presented at the second regional seminar on Teak, which took place in early June, 1995 in Yangon, Myanmar [8]. Productivity for plantations 40 to 80 years of age was found to be between 8 and 10 cubic meters per hectare per year.


It is mentioned on the cover page that the work leading to the report is partially based on a one-day visit to the plantations, which took place on February 21st, 1996, plus three day of "discussions". By the time of the one-day visit, Flor y Fauna had planted approximately 3,000 hectares in Costa Rica.

The report reiterates that the data used to come to conclusions was provided by Flor y Fauna. This is corroborated in Table 2, where the dates on which the measurements where taken are all previous to the date of the one-day visit mentioned on the cover page [9].

Flor y Fauna is an obviously interested party, under significant pressure to produce evidence to support its allegations. Particularly in such cases, information is normally gathered and processed by an independent third party. The conclusions of a report based on information supplied by the company should thus be taken with extreme caution. This is specially so with regard to information related to the fundamental issues on which Flor y Fauna is being questioned. One such issue is growth rates.

The data on which conclusions seem to have been based is presented in Table 2 of the report [9]. As presented, it is statistically meaningless, since there is no information on the variance, or the standard error, of the data used. Without these variables, it is difficult to attach credibility to the average figures presented, for they could well include large statistical errors.

There is no information on how Flor y Fauna produced these data, what sampling method was used, what sort of variation is inherent to the data collected, how significant are the results. Under such circumstances, and given the serious controversy in which Flor y Fauna is involved, to base a report on uncertain information supplied by the company itself is a perilous adventure with limited credibility.

The CCT reports highlights, as one of the reasons for its expected high yields, that the plantations of Flor y Fauna are located in a "Wet Atmospheric Association, and during some years it is quite possible that in the area it does not occur any effective dry period"[9].

When this occurs, growth may be enhanced, but the quality of the timber is affected. To produce high quality teak, there is a need for a dry period of 3 to 5 months. A dry month means less than 50 mm precipitation. When a dry period is not present, the quality of the timber tends to be poor in terms of color, texture and density. The possibility that timber from 12 to 20 year-old trees, with these characteristics, will be sold for the unusually high prices projected by Flor y Fauna, approaches a fantasy.


There are two fundamental conclusions from the abridged CCT report I've had the opportunity to review. The first is that the reliability of the data on which the conclusions are founded is extremely questionable.

The data was collected by the interested party involved, Flor y Fauna, which in turn is badly in need of evidence to support its allegations on growth rates. These allegations have drawn the company into a legal, financial and political storm. Considering this scenario, and the history of false claims which has paved the development of this project, the credibility of the information supplied by Flor y Fauna could be legitimately questioned. One such false claim indeed is the public allegation that the plantations have been certified as "well managed" by the Forest Stewardship Council.

During the last two years, and as far as I am aware, the only one piece of evidence used by Flor y Fauna and OHRA to support their allegation about growth rates was a report by the Ministry of Agriculture of The Netherlands [6]. This report has been introduced as evidence in a court of law, to the Code of Ethics Committee on Advertising, and even to the Dutch Parliament.

It is now well understood that this report is based on seriously flawed method of collecting and processing statistical information [3]. It is plagued with technical errors of such fundamental nature that a case of forged evidence could be made based upon it. Its credibility has been suddenly pulverized.

This seems to have left Flor y Fauna and OHRA in an extremely perilous position, having lost their only platform of technical support for their allegations on growth rates. They are seemingly under urgent pressure to produce some other piece of evidence. The report commissioned by Flor y Fauna from CCT may provide a temporary relief to this situation.

There are three fundamental points of controversy: the yield which may be obtained from the plantations, the price at which teak logs of 12, 16 and 20 years of age may be sold, and the consequent rates of return to investors. The CCT report makes no reference to rates of return, or to the prices at which the production from the plantations may be sold. The relevance of its conclusions on yield projections is seriously under question.

Almost simultaneous with the CCT report, OHRA released a summary of a financial analysis by KPMG Accountants, dated February 27, 1996. I will make further reference to this analysis in a future article. At this stage, it is important to highlight that this report avoids the discussion of the three fundamental variables mentioned above. KPMG has wisely kept a distance from the allegations on yield, prices and rates of return, the three issues at the core of the debate, clearly distancing itself from any form of endorsement of such projections.

According to the KPMG report, expected returns to investors in OHRA's Teakwood project now range from 11 to 23 percent. This is significantly lower than originally projected. Nevertheless, KPMG does not give an opinion on the actual sales proceeds in years 12, 16 or 20, or on the validity of OHRA's expected rates of return.


OHRA has sent a letter to my lawyer in The Netherlands, Bernard Tomlow, threatening to take legal action if I do not refrain from making critical comments about their teak business. OHRA seems particularly sensitive to the findings of my report on Flor y Fauna [1], and to my consistency in defending them. Its approach to deal with this issue is not to present credible arguments to support its allegations, or to encourage a healthy and objective debate on the subject, but to impose forced silence through legal actions. So far, neither OHRA nor Flor y Fauna has provided any evidence to justify modifications of the fundamental findings of the report.

OHRA has publicly released reports and press statements which make questionable and distorted references to the findings of my report. At the same time, it pretends to curtail the right to defend my point of view.

I do not plan to renounce to the right of free speech, especially in a case where thousands of Dutch citizens may have been lured into making investments, through misleading and inaccurate information. I have nothing to gain in this debate, but to let those people know, and so many others who have invested in similar ventures, that someone is willing to defend the technical and ethical dimensions of a forestry project in the tropics. To allow these irregularities to continue, without raising a responsible warning to all parties involved, is to endorse what I consider to be a seriously flawed operation, bordering on fraud. This is furthermore a forestry project, involving a professional responsibility in my area of competence, a responsibility I am not willing to elude.

There is an urgent need to develop plantations in the tropics, and to encourage private investment in such initiatives. Tree plantations may create jobs, wealth, and foreign exchange in countries under severe economic and social limitations. They may contribute to the alleviation of poverty, and of the related pressure on tropical forests. Nevertheless, we must make sure that such initiatives fall within acceptable technical and ethical limits, to ensure their success and multiplication in the future. Projects such as Flor y Fauna's may discourage further private investments in plantation in tropical countries, thereby preventing the alleviation of the unsustainable pressure on their natural forests, and on their unique biological, ecological and strategic value.


  2. Centeno, JC: TEAK CONTROVERSY FLARES UP IN THE NETHERLANDS. Internet posting, February 05, 1996.
  3. Centeno, JC: TEAK STING? Internet posting. February 19, 1996.
  4. Centeno, JC: BLASTING THE FSC IN THE NETHERLANDS. Internet posting. March 1996.
  5. F.H.J. van Schoonhoven [Flor y Fauna]: MEMORANDUM OF ORAL PLEADING. December 7, 1993.
  6. Ministry of Agriculture of The Netherlands: DE TEAK- PLANTAGES VAN FLOR Y FAUNA S.A. IN COSTA RICA, December 28, 1993.
  7. RENDIMIENTO Y CALIDAD DE SITIO PARA Gmelina arborea, Tectona grandis, Bombacopsis quinata y Pinus caribaea EN GUANACASTE, COSTA RICA. CATIE, Informe Tcnico 256, Costa Rica, 1995.
  8. Ministry of Forestry of Myanmar and FAO: THE SECOND REGIONAL SEMINAR ON TEAK. 29 May - 3 June 1995. Yangon, Myanmar. Resource Paper No. 2: Overview Problems in Teak Plantation Establishment. Dr. Apichart Kaosa-ard, Chiangmai University, Thailand.
  9. Centro Cientfico Tropical: TECHNICAL AUDITING OF THE GROWTH AND YIELD PROJECTIONS FOR Tectona grandis PLANTATIONS ESTABLISHED BY FLOR Y FAUNA S.A., Second Preliminary Report. Abridged version, 7 pages. Costa Rica, February 26, 1996

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.

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