August 2, 2019

The installation of a new pulp mill by the Finnish company UPM in Uruguay will consolidate the forestry sector as the most important production chain, surpassing the meat industry. Pulp will become the country’s main export product. And if the current market trend continues, Uruguay will be the world’s second-largest supplier of short-fiber pulp—with 4.7 million tons—surpassing Indonesia and trailing only Brazil, according to projections by Uruguay XXI.

Today, the two plants installed in the country -UPM and Montes del Plata- are working at maximum capacity, which is why the exported volumes remain relatively stable, at 2.5 million tons.

Considering that 1.3 million tons were exported in the first half of the year for a total of US$826 million, 2019 would close with total revenues of approximately US$1.6 billion. According to UPM, the new plant, once operational, would generate US$1.1 billion annually in pulp exports, which, added to the estimated US$1.6 billion, would result in a total of US$2.7 billion across the three plants—more than US$1 million more than total beef exports in 2018 (US$1.629 billion).

Uruguay produces over 25 million cubic meters (m3) of wood annually, of which the forestry sector markets 14 million. Javier Solari, UPM’s vice president of development in Uruguay, told Radio Rural’s Tiempo de Cambio program that «the new UPM plant will consume around 7 million m3, which would be added to the 5 million m3 of the existing plant.» This means that Uruguay’s timber extraction would increase by 50%, to 21 million m3.

Currently, the Uruguayan forestry sector has the industrial capacity to process 10.4 million m3, of which 88% (9.2 million m3) is consumed for obtaining pulp and the remaining 12% (1.2 million m3) for the sawing sector, according to statistics from CPA Ferrere (year 2017).

In Uruguay there are more than 900,000 hectares of planted forests and it is estimated that the forest area should grow for this project by around 60,000 to 90,000 additional hectares to the 389,000 hectares that the company already has.

«This growth will occur in a process related to the rotation of the already established forests – which are the ones that will supply the plant in its beginnings,» Solari explained.

The future availability of wood in Uruguay is growing in two ways.

One of them is that new areas are being forested year after year; the average for the last five years has been 20,000 ha (1% annually), mainly due to the impetus of UPM and Montes del Plata.

The second way to increase the availability of wood is that some of the harvested areas are reforested with genetic material that is more productive than the previous one.

Carlos Faroppa, president of the Forestry Producers Society, told Tiempo de Cambio on Radio Rural that «Uruguay has been accumulating timber stock and there is also timber growing in new forests, therefore the acceleration of growth would be moderate, of approximately 2% (30,000 hectares per year). What will increase are the lease or production agreements with agricultural producers.»

This new investment, which produces pulp and energy, has a positive impact on other forestry activities: all long-term timber (15-20 years) – from solid or sawn timber – will now have a market. «In these cases, it’s possible to effectively place the intermediate production – from thinning – at the pulp mill, where it is processed and value is added,» Faroppa explained.

In turn, it will bring other developments besides pulp production. UTU is developing an educational project related to forestry training in the department of Tacuarembó. It is expected to be launched between August and September. A source close to the project indicated that the installation of the new UPM plant is not related to the project.

Greater dynamism in the market for forest lands Javier Taró, manager of the real estate department of Megaagro, told Tiempo de Cambio of radio Rural that the rental market is registering greater dynamism than the buying-selling market, and everything that «appears on offer is rented.»

Depending on the location, the percentage of use, and the type of soil, the values ​​average US$160 per hectare.

Regarding land sales, within a 200-kilometer radius of the new plant’s site, prices are around US$2,000 per hectare for purely livestock-based lands, which are not ideally located and have lower productivity. Mixed-use lands, combining livestock and forestry, are priced at US$2,500 per hectare.

And there is some value above that for very good fields, which previously had some agriculture, but where livestock farming is now done with some improvement, Pablo Albano, head of the fields department of Zambrano y Cía, told El Observador.

The experience of a producer: Martín Stabile is a producer from the Río Negro department, bordering Flores. Of the 730 hectares of his property, 84 (less usable soils for other uses) are forested under the UPM Development Program, a long-term agreement for the management of eucalyptus plantations.

One of the advantages, he pointed out, is that after a year and a half of planting the forest, livestock can be introduced, with the benefit of shade and shelter for the animals.

Stabile offers two payment options, according to the company: on the one hand, the producer receives an annual rent (which varies depending on the proximity to the plantation, averaging approximately US$150/ha/year), plus a smaller percentage of profit after each harvest. The harvesting period lasts between eight and ten years. «The producer’s responsibility is to fence the area to be forested, prevent animals from entering, and use the land carefully,» he explained.

The second option is partnership: the producer does not receive a lease payment and, upon harvest, receives a percentage of the harvest (higher than in the previous option). The producer shares both the risk and the success.

Based on his figures, both methods allow him to achieve maximum returns on those soils. Considering the first method, with an average income of US$150/ha/year, where three hectares per livestock unit are needed annually, «it at least doubles the value I would get from any other alternative use,» noted Stabile, who works with cattle, sheep, and does some farming. «It’s a win-win system,» the producer reiterated several times, highlighting the benefit given the type of soil used for forestry.

The installation of the new pulp mill in Uruguay will revitalize the entire forestry chain and expand the productive integration of trees with other essential sectors for the country.

Production: Cecilia Ferreira and Cecilia Pattarino

The figures

Once operational, pulp exports could generate $2.7 billion per year.

At the same time, the three plants, the one in Montes del Plata and the two in UPM.

National pulp production could reach 4.7 million tons when the third plant that UPM is going to build near the town of Pueblo Centenario is operational.

Source: AGROPECUARIO (SUPPLEMENT TO EL OBSERVADOR) | Blasina y Asociados