COLUMN

Uruguay Symbolizes Shift In The Global Wood Fibre Supply

By Jim Stirling

Most Canadians would not recognize Uruguay as an emerging forest industry powerhouse. Indeed, many people have only a vague idea about where this country is, let alone its economic structure or potential. But in no insignificant manner, Uruguay symbolizes a shift in traditional wood fibre supply and product marketing relationships that reemphasizes in dramatic fashion the truly global nature of the forest industry as we go into 2001. But first, a quick lesson about the country.

Some of the largest and shrewdest forest companies have singled out Uruguay as an investment for their future.

Uruguay is about two thirds of the way down South America on the eastern or Atlantic side. It's tucked under Brazil and separated by river from Argentina. It's a stable, democratic republic with no military juntas or armed uprisings in the streets. Uruguay's 3.5 million inhabitants have a high literacy rate and the country has the most used secondary education system and lowest levels of poverty in South America. The capital and major port, Montevideo, is rated second only to Tokyo as the least risky city in the world in terms of crime by the Wall Street Journal.

Weatherwise, the country has no snow or intense tropical heat and is not afflicted by earthquakes or hurricanes. It's a nice, placid place. Uruguayans have embraced the digital and electronic communications era with rare fervour. They're never far from a laptop or cell phone. Montevideo is the headquarters of Mercosur, the common market of South America's southern cone, with a combined population of 225 million and GDP of US$1.2 trillion. Uruguay is a major financial centre with free capital movement and banking secrecy laws paralleling Switzerland.

It makes the country refreshingly open for business, with Uruguayans and foreigners treated alike. There's no personal income tax and exemptions from capital gains and real estate taxes are among other perks and encouragements for investors. Uruguay has 4.7 hectares of productive soil per inhabitant and, when it comes to forestry, possesses one of the world's highest yields per hectare. Trees grow like crazy. To provide an illustration, Urufors is a company with forest plantations in the department of Rivera, in northern Uruguay near the Brazilian border. It manages them for solid, clear wood to supply its sawmill and value added plant. It expects 15 to 18 cubic metres/ha each year in elliotti pine plantations and 35 to 38 cubic metres/ha each year in eucalyptus grandis.

Pulpwood is harvested within 10 years of planting. With that raft of positives and prodigious tree growth, it's not surprising some of the largest and shrewdest forest companies have singled out Uruguay as an investment for their future. From Canada these include Weyerhaeuser and West Fraser, which have bought tracts of land and established plantations of nonindigenous species. Uruguay adopted a forest plan in 1989 which offered a range of benefits to farmers, encouraging them to plant specified tree species in designated areas. The plan identified 3.5 million hectares with official forested status lands and soils of marginal use for cattle or agriculture.

The strategy has worked well. Prior to 1989, about 1,750 hectares annually were planted with trees. From 1993 to 2000, areas planted ranged from 42,000 to 60,000 hectares a year with large forest companies leading the way. Uruguay is growing the fibre required for a reinvigorated forest industry. As the plantations managed for solid wood come on stream for final harvesting, new sawmills and value-added remanufacturing plants will be constructed to process the wood. Weyerhaeuser alone predicts about 2.5 million cubic metres a year from its plantations within eight years. That's a lot of high quality wood that will convert into premium products. Uruguay has no pulp mills and all cellulose fibre is exported.

Every day, 30tonne trucks loaded with 2.4 metre bolts of eucalyptus logs arrive at ports like Montevideo and Fray Bentos, filling oceangoing freighters capable of holding 36,000 solid cubic metres. Multiply that with rapidly growing volumes from Uruguay's much larger neighbours, Argentina and Brazil, and within five years an inundation of relatively cheap eucalyptus pulp is going to be coming on the market. It's going to have a huge competitive effect on how and where Canadian and US pulp mills access fibre and market their products. Not everything is in Uruguay's favour, of course. It's a long way from many major markets. Then there's the wood culture factor.

Trees are a nontraditional crop and there's a natural reticence to change, especially among the older generations who own most of the land. But that is steadily changing with the advantages and incentives available. Delamonte SA operates a plantation, sawmill and value-added plant in a rural community near Paysandu in northwestern Uruguay. The company has been in forestry 22 years, nurturing eucalyptus grandis and elliotti pine. Silvicultural management is geared toward producing quality clear wood which is selectively hand felled.

Already products from the efficiently run mill and plant are being successfully marketed from Japan and Thailand to the US and Germany. Debarked pine chips have found a home in an Argentinian MDF plant. The company is applying for a Forest Stewardship Council stamp and feels conditions are the best yet for further market development penetration into the US and UK. "We're able to produce different things and we must decide which direction to go. We're trying to do tests with different products and markets," says Luis Sala, general manager. "We're like a horse, waiting for the race to begin."

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