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Missing trees for woods in perfume industryMissing trees for woods in perfume industryIan Jackson Monday, July 07, 2008 http://www.thestandard.com.hk/new...mp;con_type=1&d_str=&fc=1 Have you ever wondered how much money is involved in the odors of the developed world. So, to make sure there are no big surprises here, I'm not talking about imported Chanel No 5, but the odor of Agarwood, the resinous heartwood at the center of the perfume industry. According to Brent Clegg, director of Touchwood, the "local" Agarwood industry is "whopping" and his output of trees farmed in Thailand is targeting Asian and Middle Eastern markets. "It's both an interesting and green story, including a turn from a deforestation pattern in parts of Thailand towards a forestation pattern and a boon to local villagers benefiting from employment," he said. So going in to the woods, what should you beware of? Well, I would call it a tactical, non- core deal and therein lie the usual disclaimers: seek independent legal advice and understand the risk." Still, like any investment purchase, caveat emptor, let the buyer beware, applies. From an investment angle, Clegg says, Touchwood targets "no more than 10 percent of portfolios." Touchwood buys or leases forests in Sri Lanka, Australia and Thailand. The "Agarwood" trees come from Thai produce. The Sri Lankan forests have just produced their first Vanilla crop and sold it on the local Sri Lankan market at a lofty return, according to Clegg. No other crop has produced a return yet as the firm formed in 1999 and the trees need to grow. The tree stock consists of: Agarwood, the world's most expensive resinous wood and Touchwood, which has patented a process supported by Robert Blanchette and Joel Jurgens, from the University of Minnesota. Their process amounts to the injection of a serum into the Aquilaria tree after three years of its life and over the following three years it produces Agarwood. The main markets for it are the middle-eastern peninsulas for perfumes and China for herbal medicines. The other trees being farmed include: mahogany, sandalwood and vanilla. Obviously, the trees grow at different paces: Agarwood has a six-year cycle; the Australian hardwoods 14 years, Sri Lankan hardwood 14 years, mahogany 18 years and Vanilla anywhere above six years. Roscue Maloney, a Sri Lankan and founder of Touchwood, has pieced together some interesting land package deals and now uses the land to plant the Aquilaria tree. Investors buy trees, not land. So, land price movements are irrelevant to the investment. Proceeds will depend on the produce. What about elephants rampaging through your trees, or the odd teddy bears' picnic, I hear you asking? Clegg states that the offering includes a "replacement factor" as Touchwood plants an extra 10 percent to cover such contingencies. Your trees will cost you a minimum US$5,000 (HK$39,000), whilst one acre would cost US$40,000. The expectation is that one acre would grow 960 trees. The most important points to remember are that if the demand for the Agarwood fragrance slackens, the market would fall and your tree might not be worth as much. Supply and demand will, of course, ultimately dictate the quantity of return and viability. Ian Jackson is the general manager at wealth management consultancy Financial Partners email: ian.jackson@financial- partners.biz |