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Discussion Paper, Environmental Projects UnitInternational Finance CorporationMember of the World Bank Group

Washington, D.C.

Biodiversity and Businessin Latin America

Michael C. Rubinowith

Diana Propper de Callejon and Tony Lent

Copyright © 2000International Finance Corporation2121 Pennsylvania Ave., NWWashington, D.C. 20433, U.S.A.(202) 473-7711www.ifc.org

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International Finance Corporation (IFC), an affiliate of the World Bank, promotes the economic development of itsmember countries through investment in the private sector. It is the world’s largest multilateral organization provid-ing financial assistance directly in the form of loans and equity to private enterprises in developing countries.

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Contents

iii

Acknowledgments v

Glossary vii

Executive Summary ix

1. Introduction 1

2. Private Sector Links to Biodiversity Conservation 5

3. The Market: Biodiversity Business Sectors 13

4. Financing Needs 37

5. Moving Forward 45

Appendix: Examples of Biodiversity Business Opportunities 47

Acknowledgments

v

Michael Rubino, the lead author, was responsiblefor the biodiversity projects jointly financed byIFC and the Global Environment Facility (GEF)from 1992 to 1998. The IFC/GEF program is un-der the direction of Andreas Raczynski, Director,Technical and Environment Department; MartynRiddle, Associate Director for Environment; andLouis Boorstin, Manager, Environmental ProjectsUnit. Diana Propper de Callejon and Tony Lentof EA Capital worked on the initial feasibilitystudy for Terra Capital Fund as consultants to IFCand helped to define the links betweenbiodiversity and business and the key biodiversitymarket sectors. Additional material was contrib-uted by Brooks Browne, J. D. Doliner, JohnForgach, and Marcelo Andrade, members of themanagement team of Terra Capital Fund, and byRachel Crossley, then of EA Capital (now atFriends Provident). Several consultants to IFCconducted specific research assignments, includ-ing Thomas Harding and Pedro Landa, EricIngersol, and Carlos Quintela. Douglas Salloum,

Manager of the IFC/GEF SME Program, and DanaYounger, GEF Coordinator at IFC, contributed tothe paper through the design and implementa-tion of IFC/GEF projects.

The authors are also indebted to a large numberof other people who provided information andadvice. The paper was reviewed by DeborahVorhies, Louis Boorstin, and Bernard Pasquier ofIFC, Ken Newcombe of the World Bank, WouterVeening of the Netherlands Committee of the WorldConservation Union (IUCN), Frank Vorhies of theIUCN, and Guy Reinaud of Pro-Natura International.Frank Tugwell, formerly of the Heinz Endowments(and now President of Winrock International), andDan Martin of the MacArthur Foundation, respec-tively, oversaw grants to IFC and EA Capital thatcontributed to the research work. KathleenMackinnon, Gonzalo Castro, Christine Kimes, andLars Vidaeus at the World Bank; Evan McCordick,Jeffrey Griffin, Julio Lastres, and Noam Ayali, formerIFC staff; and Flavio Guimaraes of IFC participatedin the development of Terra Capital Fund.

Glossary

vii

Biodiversity A shortened form of the term “biological diversity,” which refers to the large number,variety, and variability of living organisms and ecosystems. Decline in biodiversityincludes all those changes that relate to reducing biological heterogeneity, fromindividual members of a species to regional ecosystems.

EEAF Environmental Enterprises Assistance Fund

FAO UN Food and Agriculture Organization

FSC Forest Stewardship Council

GEF Global Environment Facility

IBRD International Bank for Reconstruction and Development

IDB Inter-American Development Bank

IFC International Finance Corporation

IFOAM International Federation of Organic Agriculture Movements

IRR Internal rate of return

ISO International Organization for Standardization

ITTO International Tropical Timber Organization

IUCN The World Conservation Union

MIGA Multilateral Investment Guarantee Authority (World Bank)

MSC Marine Stewardship Council

NGO Nongovernmental organization

NRC National Research Council

NTFP Nontimber forest products

OCIA Organic Crop Improvement Association

ROE Return on equity

Sustainable When used with respect to a practice, process, system, product development, or otheritem, the term “sustainable” means that the practice, process, system, product, devel-opment, or other item allows people to meet their current needs without compromis-ing future stocks of environmental capital, such as productive topsoil, clean air, fertileforests, abundant fish stocks, or genetic diversity of both plants and animals.

viii Glossary

UN United Nations

UNEP United Nations Environment Program

WBCSD World Business Council for Sustainable Development

WTO World Tourism Organization

WTTC World Travel and Tourism Council

WWF World Wildlife Fund

Executive Summary

ix

“Biodiversity businesses” represent a new anddynamic partnership. This alliance between busi-ness and conservation interests offers enormouspotential benefits for all humankind. Like tradi-tional businesses, biodiversity enterprises seek toearn a profit. At the same time, they make a de-liberate effort to conserve biological diversitythrough the sustainable use of environmental prod-ucts in sectors such as forestry, agriculture, andtourism. If their record in Latin America is anyindication, these businesses are booming. But theindustry is still in its infancy and in need of newsources of capital. This report outlines (a) thebusiness and conservation rationale for investingin such businesses and (b) some of the invest-ment opportunities in biodiversity-linked markets.

The Business and ConservationRationale

Consumer demand for environmental products ison the rise. Vigorous markets have emerged forproducts such as shade-grown certified organiccoffee, the juice and heart of selectively harvestedpalms, tourism on an aerial tram through thecanopy of a rainforest, ecotourist lodges next tonature reserves, laminated flooring manufacturedfrom certified wood harvested by community for-est operations, cultivated scallops, and the essencesof flowers used in perfumes and yogurt. Accord-ing to IFC investigations in collaboration with TerraCapital Fund (a biodiversity investment fund forLatin America) and the Global Environment Facil-ity, many of the businesses currently producing

biodiversity-friendly goods and services representinvestment-grade opportunities. As yet, the vol-ume of these products is small in relation to theoverall market, but production is increasing rap-idly and the profit potential looks promising. Thesales of organic agricultural products, for example,are in the neighborhood of US$15 billion a yearat the wholesale level and since 1990 have beenincreasing at the rate of 20% to 25% a year inEurope and North America.

The rationale for investment is equally persua-sive from the conservation point of view. Biologi-cally rich habitats throughout the world are undermounting threat from increased population, pol-lution, and expanding croplands and urban settle-ments. As emphasized by the 1992 Conventionon Biological Diversity, it is essential for the pri-vate sector to contribute its vast technical, mana-gerial, and financial resources and expertise tousing the products of such habitats in ways thatprotect and sustain their biodiversity and thusensure human survival. Investing in biodiversitybusinesses also helps such businesses create newvalue from ecosystems and genetic resources. Andit encourages businesses to employ methods thathave a low impact on natural habitats.

The practices that help to conserve and ensurethe sustainable use of the resource base are beingdebated by businesses, industry associations, non-governmental organizations (NGOs), and govern-ments. However, there will be no input with whichto develop guidelines unless biodiversity busi-nesses of all types are attempted.

Investors will be interested to hear that“ecoefficient” enterprises exhibit a talent for hold-

Biodiversity and Business in Latin Americax

ing down long-term costs, reducing liability, andraising profit margins. Furthermore, such busi-nesses are geared to meet the environmental re-quirements imposed by global agreements, whichmay be a condition for access to certain resources.Other benefits arise from reaching out to newpartners (such as NGOs), participating in the defi-nition of environmental standards, and creatingnew brand names to promote biodiversity-friendly products. The biodiversity enterprise’semphasis on conservation and sustainable useshould also appeal to institutions concerned withmonitoring the environmental effects of their in-vestments. In sum, there are many compellingreasons for entrepreneurs to pay attention tobiodiversity businesses.

Investment Opportunitiesin Biodiversity Markets

Biodiversity markets are especially active in LatinAmerica. Real investment opportunities of all sizesexist in agriculture (including aquaculture), for-estry, products sustainably harvested from the wildsuch as nontimber forest products (NTFPs), andecotourism.

Sustainable Agriculture

Businesses in sustainable agriculture in LatinAmerica far exceed the number in other biodiversitysectors. The products include certified organic crops,underutilized species, and aquaculture productsfarmed in environmentally sensitive ways. Certi-fied organic producers range from small and largefarms to processing companies and producer co-operatives. Most Latin American countries haveone or more certification organizations. The ma-jor markets are the United States and Europe, al-though local demand is growing.

Underutilized species and wild relatives of do-mesticated species also offer considerable invest-ment potential, particularly in areas of degradedor arid land. One such area is the Andean re-gion, known for its native roots, fruits, grains,vegetables, and legumes. Many of these prod-ucts have been cultivated since pre-Colombiantimes and may present investment opportuni-ties today.

Sustainable Forestry

At present less than 5% of total forest productsare certified. However, certification is expected tobecome widespread under mounting pressure formore environmentally and socially responsibleoperations. Some producers are adopting certifi-cation as part of a total quality management ap-proach to production. Leading producers inBolivia, Brazil, and Costa Rica, for example, havetaken steps to gain certification from the ForestStewardship Council. Many entrepreneurs believethat some sort of certification will be required formarket access and may be positioning themselvesto maintain or gain market share.

This development offers some hope for theconservation and sustainable use of the Amazonand other large stands of tropical forest in LatinAmerica—among the last remaining “frontier” for-ests in the world. Local and international compa-nies continue to exert tremendous pressure onthese forests for fuelwood cutting, charcoal mak-ing, land clearing for agriculture, and logging.

Nontimber Forest Products

Sustainable nontimber forest products include res-ins, essential oils, edible oils, plant gums, fibers,nuts, fruits, dyes, insect products, latex, ornamen-tal plants, spices, herbs, and handicrafts. Also,game hunting, wildlife ranching, and recreationalfishing may contribute to biodiversity conserva-tion. Best practices for products in this categorydepend upon the species harvested, though ingeneral they are likely to be akin to those devel-oped for sustainable forestry. So far, this is a frag-mented sector in Latin America, in the hands ofsmall businesses, NGOs, and cooperatives. Entre-preneurs will find ample opportunity to start pro-cessing facilities near forests, provide equipment,and enter into marketing.

Ecotourism

Ecotourism by definition contributes to biodiversityconservation. It offers financial assistance for con-servation, follows ecologically sensitive designs,and helps sustain the well-being of local people.Best practices have been outlined by ecotourismsocieties, and joint NGO-tourism industry efforts

Executive Summary xi

are under way to educate consumers about thedifferences between ecotourism and nature tour-ism, which is simply geared toward bringing tour-ists to attractive sites.

Ecotourism is still in the early stages of devel-opment, with small facilities and few links to ma-jor tour companies. Operators in Latin Americaare introducing new approaches—such as onedeveloper/operator with multiple sites, exclusiverights (e.g., concessions for a national park), or asmall luxury operation—in the hope of expand-ing the ecotourism industry. Several of these ap-proaches are being tested in the Amazon, thePantanal, Patagonia, the Yucatan, and Costa Rica.

Financing Needs

Biodiversity enterprises in Latin America have beenfinanced largely by traditional sources: family sav-ings, cash flow reinvested from existing businesses,trade finance, advance payments or loans on prod-uct, bilateral and development bank financing, andsome traditional bank financing. As yet, thesebusinesses have been unable to tap into sufficientlonger-term equity and debt to meet their capitalneeds and the market potential of projects in thesesectors. As a result, they have been unable to growfast enough to make a positive contribution tobiodiversity conservation.

These ventures face typical financing hurdles:many are too small for standard IFC and otherinstitutional financing, local bank debt is scarceand often runs at prohibitively high rates, busi-ness risks and transactions costs are perceived tobe high by potential investors, local banks areunfamiliar with these sectors, and business devel-opment costs are high. However, the tide may beturning now that biodiversity enterprises are show-ing a profit. Private investors, larger companies,and institutional investors (banks, pension funds,insurance companies) are paying more attention.

Pioneering investors have led the way by pro-viding capital to enterprises that adhere to sus-tainable practices in Latin America. A handful ofinvestment funds—among them Terra CapitalFund—now target organic agriculture, sustainableforestry, and ecotourism. Investors in these fundsinclude several private investors and companies,IFC, the Multilateral Investment Fund, bilateral in-

vestors such as the Swiss Government, and foun-dations. Much larger amounts of money are beinginvested by agribusiness companies and entrepre-neurs in the natural foods industry. And the for-estry industry’s move to certified production isattracting several larger institutional investors toLatin America.

Moving Forward

Biodiversity businesses offer entrepreneurs andinvestors alike significant opportunities for finan-cial gain while performing a valuable service tohumankind and biodiversity conservation. Butbiodiversity business sectors are still small in rela-tion to the overall market in which they operate,although they have made considerable headwayin recent years.

Before much larger amounts of money are in-vested in such enterprises, a number of questionsneed to be answered: How can more widespreadadoption of sustainable production methods bepromoted and thereby act more quickly to stembiodiversity losses? Can the market growth of thevarious biodiversity business sectors be sustainedor increased? And how can additional private sec-tor money be brought into play? IFC, investmentfunds such as Terra Capital Fund, and IFC part-nerships with the Global Environment Facility,NGOs, bilateral investors, and foundations areworking to help answer these critical questionsfor conservationists and investors.

The verdict is still out on the financial successand conservation impact of many of the biodiversitybusinesses now in operation. By some definitions,best practices required for certification may not be“sustainable.” But low-impact practices are gener-ally far better for biodiversity conservation thanclearly unsustainable practices. Biodiversity-friendlybusinesses will gradually yield not just examplesof entrepreneurship but also lessons indicating howto refine best practices and certification standardsand whether such activities actually conserve andsustainably use biodiversity. If we do not try, thesequestions will remain unanswered. From thegrowth record of the pioneering ventures de-scribed in this report, it appears that biodiversityenterprises may well succeed in meeting bothconservation and market development objectives.

“Biodiversity businesses” are thriving. These busi-nesses seek to earn a profit and conserve biologi-cal diversity—meaning the number, variety, andvariability of living organisms, species, and eco-systems. Such enterprises make biodiversity con-cerns an integral and proactive part of all theiroperations, in a deliberate effort to conservebiodiversity and achieve sustainable use. Thus,they do not merely endeavor to reduce the nega-tive impacts of their activities and contribute toconservation by being better than the alternativeuse. Examples of biodiversity businesses and prod-ucts include

• shade-grown certified organic coffee,• the juice and heart of selectively harvested

palms,• an aerial tram through the canopy of a

rainforest,• ecotourist lodges next to nature reserves,• laminated flooring made of certified wood

harvested by community forestry operations,• aquaculture of native scallops, and• essences of flowers used in perfumes and

yogurt.

There are compelling market and conservationreasons to find new sources of capital for suchbusinesses. On the market side, the economicpotential of biodiversity enterprises is demon-strated by the rapidly growing consumer demandfor environmental products. On the conservationside, the rapid depletion of biological resourcesworldwide makes it all the more urgent to en-courage these enterprises. This report outlines theinvestment opportunities in biodiversity-linked

markets and ways to help such companies meettheir capital needs. Experience in Latin America isused to illustrate the potential and developmentneeds of biodiversity businesses. Throughout, theterm “biodiversity business” is used interchange-ably with “biodiversity-friendly practices” and“biodiversity-linked practices.”

The Business Rationale

Why would entrepreneurs, driven by profit andself-interest, pay attention to conservation?1 Theanswer is, they are drawn by the same forces thatattract them to any business endeavor: marketdemand, cost savings, regulation, and partnership.

Market Demand

Biodiversity-linked markets are booming. The de-mand for natural products, certified organic agri-culture, ecotourism, and certified forest productsis on the rise. Although the volume of these prod-ucts is still small in relation to the overall market,their production is increasing rapidly. Entrepre-neurs are successfully producing for these mar-kets in many locations, especially in Latin America.Real investment opportunities of all sizes exist.

Other Drivers

“Ecoefficient” processes show considerable poten-tial for holding down long-term costs, reducingliability, and raising profit margins.2 Another strongincentive is that government regulations and glo-

1Introduction

1

Biodiversity and Business in Latin America2

bal agreements may impose stringent environmen-tal requirements and make the use of sustainablepractices a condition for access to resources. Atthe same time, numerous benefits can arise fromreaching out to new partners (such as nongov-ernmental organizations, NGOs), participating inthe definition of environmental standards, andcreating new brand names to promote biodiversity-friendly products. Some businesses are drawn to-ward conservation by the biodiversity concernsof their institutional investors (e.g., pension fundsand insurance companies), many of whom moni-tor the environmental effects of their investments.

Biodiversity Conservationand the Private Sector

From the conservation point of view, investing inbiodiversity businesses fulfills another importantobjective: it ensures the sustainable use and pro-tection of natural resources critical for human sur-vival. Such businesses not only create new valuefrom ecosystems and genetic resources. They alsodivert pressure from critical components of thoseecosystems and achieve sustainable yields byemploying methods that have a low impact onnatural habitats.

The mounting threat to biologically rich habi-tats—from increased population, pollution, andexpanding croplands and urban settlements—drew worldwide response in 1992 with the sign-ing of the Convention on Biological Diversity.3

Biodiversity, the Convention concluded, will notbe conserved unless the economic reasons forprotecting and sustainably using biodiversitybecome widely known and unless the privatesector contributes its vast technical, managerial,and financial resources and expertise to suchconservation.4

The public sector cannot provide the neces-sary funds to conserve biodiversity. If anything,government aid to developing countries with sig-nificant biodiversity resources has been decliningsince 1990. However, private sector investment indeveloping countries over the same period hasexpanded dramatically.5 If even a small portion ofthis flow into emerging market countries couldbe directed to biodiversity businesses, the impacton conservation could be enormous.

The Questions

Channeling private investment toward biodiversitybusinesses may be one way of stemmingbiodiversity loss while generating good returnson capital. A great idea—at least in theory. Butinvestors are unlikely to commit large amounts ofcapital to such businesses without knowing moreabout their operations:

• How many and what types of businesses areproducing biodiversity-friendly goods andservices?

• Do any of these businesses represent invest-ment-grade opportunities?

• What are their financing needs?• How fast will they grow and when will they

become mainstream business activities?• Can these businesses expand even faster and

thereby counter biodiversity losses morequickly?

• What evidence indicates that these activitiesactually conserve biodiversity?

• How do consumers know that they are buy-ing a biodiversity-friendly product and thatbest practices are followed in its productionand processing?

Preliminary Answers

IFC and a few other groups have begun address-ing these questions in an effort to find ways toinvest in biodiversity businesses. Some findingsof particular interest stem from IFC’s 1994–99 in-vestigation of the market forces, potential invest-ments (the “deal flow”), and financing constraintsfor biodiversity enterprises in Latin America. Muchof the work was undertaken in conjunction withthe development of Terra Capital Fund (abiodiversity investment fund for Latin America)6

and the IFC/GEF Small and Medium-Scale Enter-prise Program.7 Both initiatives received financialand other support from IFC and the Global Envi-ronment Facility. This paper draws on that investi-gation and on EA Capital work sponsored by theJohn D. and Catherine T. MacArthur Foundation.

The discussion opens in Chapter 2 with anoutline of the private sector links to biodiversity

Introduction 3

conservation. The emphasis here is on the typesof private sector activities that enhance biodiversityconservation. Best practices, certification, and en-vironmental labels are also defined.

Chapter 3 turns to the markets for biodiversity-linked products in agriculture (including aquacul-ture), forestry, products sustainably harvested fromthe wild such as nontimber forest products, andecotourism.

Chapter 4 presents financing and market de-velopment steps that may facilitate the expansionof biodiversity businesses. In Latin America, ven-tures of this kind are often unable to obtain long-term capital because they are too small for standardIFC and other institutional financing. They facenumerous other problems as well: local bank debtis scarce and often runs at prohibitively high rates,business risks and transactions costs are perceivedby potential investors to be high, local banks areunfamiliar with these sectors, bilateral agenciesand foundations focus on NGOs and microenter-prises, and business development costs are high.The chapter examines (a) the financing problemsof entrepreneurs and investors in biodiversitybusinesses, (b) sources of capital for such busi-nesses, and (c) ways to combine financial andbiodiversity objectives.

Chapter 5 returns to some of the critical ques-tions posed at the beginning of this discussion,particularly those about possible rates of businessexpansion and the sustainability of the marketsfor biodiversity products.

Examples of businesses in Latin America withthe potential for both economic and biodiversitybenefits appear in the Appendix. These are drawnfrom a database of over 100 projects. The examplesshow that biodiversity businesses can indeed thrivein traditional and new markets and that there areopportunities for increased investment.

Notes

1. For further discussion of this question, see World

Business Council for Sustainable Development (WBCSD)

and the World Conservation Union (IUCN), Business

and Biodiversity: A Guide for the Private Sector (Geneva,

June 1997); P. Hawken, A. Lovins, and L. Hunter Lovins,

Natural Capitalism: Creating the Next Industrial Revo-

lution (Boston: Little, Brown, 1999); and M. C. Rubino,

“Biodiversity Finance,” International Affairs, vol. 76,

no. 2 (April 2000), 223–240.

2. Ecoefficient companies may also lower their risks

and liabilities and make better use of their assets

(through less waste, recycling, competitive advantage,

loyal customers, cost savings of “total quality manage-

ment”). The WBCSD coined the term “ecoefficiency” to

describe these cost-saving actions. See S. Schmidtheiny

and F. Zorraquin, with the WBCSD, Financing Change

(Cambridge, Mass.: MIT Press, 1996).

3. Examples of events that have caused the loss of

critical natural habitats are the recent forest fires in tropi-

cal forests and cyanide poisoning and bleaching of coral

reefs. For a status summary, see World Resources Insti-

tute, World Resources: A Guide to the Global Environ-

ment 1996–97 (New York: Oxford University Press,

1996); C. Jaka, “World Biodiversity Experts Gather in

Washington to Assess Biodiversity Crisis,” Diversity, vol.

13, no. 4 (1997–98), 16–18; J. Warrick, “Mass Extinction

Underway, Majority of Biologists Say,” Washington Post,

April 21, 1998, A4.

4. In addition, meetings of the Convention’s Confer-

ence of the Parties stated a desire to “explore further

possibilities for encouraging the involvement of the

private sector in supporting the Convention’s objectives.”

5. Between 1990 and 1997 annual government aid

declined 20%, to less than US$50 billion. During the

same period, private capital flows between developed

and developing countries rose from about US$50 bil-

lion per year to US$256 billion and accounted for more

than 85% of total net flows. These figures are drawn

from IFC and World Bank statistics.

6. Terra Capital Fund began operations in October

1998. IFC and the fund manager for Terra Capital Fund

conducted the feasibility work, initially through a study

in 1994 (sponsored by IFC, GEF, and the Heinz Endow-

ments) and then during 1995–97. See IFC, Technical

and Environment Department, GEF Project Document:

Latin America Terra Capital Fund (Washington, D.C.,

January 1997).

7. IFC, Technical and Environment Department, GEF

Project Document: Small and Medium-Scale Enterprise

Program Replenishment (Washington, D.C., January

1997).

2Private Sector Links

to Biodiversity Conservation

5

The attraction of biodiversity markets for inves-tors is best understood by examining the benefitsof linking the private sector and biodiversity. Link-ing in this sense does not simply mean pursuingproduction and processing practices that are moreenvironmentally friendly than other methods ofproduction. Rather, it refers to the pursuit ofbiodiversity-friendly practices.

The first question to ask, then, is how will aninvestor or consumer recognize such practices?Will it also be easy to tell whether the product isbiodiversity friendly? What environmental criteriashould guide investment decisions? These andother questions regarding investment inbiodiversity enterprises can be answered in partby drawing on the results of scientific research,observations of the Convention on Biological Di-versity, best practices required for environmentalcertification, and the lessons learned from exist-ing businesses. This chapter outlines some basicinformation along these lines by explaining

• the kinds of links that may be forged be-tween business and biodiversity,

• the nature of biodiversity-friendly practices,• the differences between direct and indirect

impacts on biodiversity and the need forproject-specific information, and

• the importance of best management prac-tices and certification.

The fundamental question of why biodiversityconservation itself is important is addressed inBox 2.1.

Business Connections to Biodiversity

The links between business and biodiversity maytake several forms. First, a business may seek toconserve and ensure the sustainable use of thoseresources. In fact, this is a defining characteristicof biodiversity businesses: as mentioned in chap-ter 1, these enterprises make biodiversity conser-vation and sustainable use an integral andproactive part of the business operation.Biodiversity businesses are concentrated in indus-tries such as forestry, agriculture, fisheries, tour-ism, and pharmaceuticals, all of which depend onthe bounty of biological resources. Some of theproduction methods available to these industriescan do terrible damage to the biodiversity of theecosystems from which they draw their resources.Other methods, both old and new, help to con-serve and ensure the sustainable use of the re-source base, thus conserving biodiversity. Byabandoning harmful practices for ones that helpprevent the loss of biodiversity, the private sectorcan become a steward of biodiversity, while itsfirms continue to operate profitably.

Second, business activities have an environmen-tal impact. Businesses that practice the best avail-able environmental controls can thus contributeto biodiversity conservation in comparison withsimilar businesses with no environmental controls.Note that if a business tries to reduce those im-pacts simply by controlling pollution, it is notdefined here as biodiversity-friendly. Many min-ing and petroleum industries fall into this category.


business elite and hence deter economic devel-opment, not to mention environmental conserva-tion. This has long been the case in Latin America,although the tide is beginning to turn there throughthe help of community activists, politicians, andbusiness leaders.1 Some large petroleum and min-ing companies now engage stakeholders to de-sign programs that will mitigate the negative socialand environmental effects of extractive or indus-trial activities. Social impact is also a priority ofthe Convention on Biological Diversity, which calls

Natural habitats and the diverse species they support main-tain the ecosystem functions on which human life depends.Among their functions, ecosystems cycle water and nutri-ents, manage watersheds, regulate climate, and provide adiverse and healthy source of plant and animal genes forhuman food, fuel, shelter, medicines, recreation, and otherproducts. Wild relatives of domesticated plants and ani-mals are the source of genetic material used to improvecrop yields and combat agricultural diseases and pests. Eco-systems also offer intangible benefits, notably “existencevalue” (the knowledge that large areas of natural habitatsstill exist on the planet) and “option value” (the possibilityof discovering life-saving pharmaceuticals from plant oranimal essences).

Preventing biodiversity loss has therefore become a keyobjective of many NGOs, governments, and aid agenciesworldwide. Some industry groups have also joined the band-wagon and are emphasizing the use of sustainable, bio-logically diverse production methods. The shrimp-farmingindustry, for example, is looking to sustainable production“best practices” to achieve long-term profitability and com-bat the recent outbreak of disease caused in part by envi-ronmentally damaging production methods. To cite anotherexample, certified organic farmers have long mimickedsome aspects of natural ecosystems by growing interde-pendent species, maintaining soil fertility, recycling waste,extending natural habitats, and avoiding the use of mostman-made chemicals.

Biodiversity conservation efforts are complicated by anumber of factors. First, it is not known how muchbiodiversity exists; hence its potential uses are difficult to

judge. Estimates of the number of species worldwide varysignificantly, from 1.4 million to 5 million or even 30 mil-lion. Estimates vary so widely because research on ecosys-tems—whether river and marine ecosystems, coastalwetlands, or montane habitats—is still limited. For the timebeing, a sound policy approach would be to abide by the“precautionary principle,” that is, to address biodiversityissues by erring on the side of caution. Second, in the ab-sence of detailed knowledge about how ecosystems work,it is difficult to determine how past, present, or future hu-man activities may affect those systems. One activity withenormous impact has been the migration of human popu-lations. Over the past 500 years, human travel and tradehave rapidly moved species and rearranged ecosystemsaround the world, most notably in the exchanges betweenEurasia and the Americas. Furthermore, no one yet knowshow much loss of biodiversity can be tolerated before anentire natural system will break down. Biodiversity usersare faced with many difficult questions: How muchbiodiversity can we afford to lose? How much do we needto save? What should the priorities for protection be? Thewisest course seems to be to try to conserve as much aspossible and use the resources wisely.

Sources: G. C. Daily, ed., Nature’s Services: Societal Depen-

dence on Natural Ecosystems (Washington, D.C.: Island Press, D.C.,

1997); L. Boulton, “FT Guide to Biodiversity: Why Extinction Is Bad

for Economic Progress,” Financial Times, May 5, 1998; E. O. Wil-

son, The Diversity of Life (Cambridge, Mass.: Harvard University

Press, 1992); H. J. Viola and C. Margolis, eds., Seeds of Change

(Washington, D.C.: Smithsonian Institution Press, 1991).

A hotel next to a scenic natural site that treats itswastewater, say, can only be considered a biodi-versity business if in addition it follows the bestpractices recommended for ecotourism and there-by actively contributes to the conservation andsustainable use of adjacent biodiversity resources.

Third, businesses linked to biodiversity can havea distributional or social impact, through the flowof revenues arising from the sustainable use ofbiological resources. Such benefits are not widelyavailable when the revenues go primarily to the

Box 2.1. Why Is the Conservation of Biodiversity Important?

Private Sector Links to Biodiversity Conservation 7

for the benefits arising from biodiversity use to beshared equitably. The ecotourism industry hasbeen a proponent of this view, one of its goalsbeing to improve the well-being of local people.Field experience provides numerous examples ofbest practices that have generated local incomeand conserved resources.2 However, more needsto be done in the social sphere. Organizationssuch as the World Bank and IFC have adoptedand continue to refine guidelines for worker healthand safety, the displacement of local people, andother social impacts as part of their environmen-tal review policies. Some countries have also be-gun to take note of intellectual property rightsand access to genetic resources connected withbiodiversity.

For all these reasons, the concept of biodiversityhas wide-reaching political as well as scientificimplications. That is why the objectives of Article1 of the Convention include not only the conser-vation of biodiversity and sustainable use of bio-logical resources, but also the equitable sharingof the benefits arising from this use. Conventionparticipants recognized the critical role of the pri-vate sector in meeting these objectives and chal-lenged signatory countries to (a) seek new financialresources, including private sector resources, toimplement the objectives of the Convention, and(b) work with the private sector to encouragesustainable use.

Private sector engagement is only one of thepaths to biodiversity conservation. Governmentpolicies and the establishment of protected areas,for example, can play a role as well. Nor shouldthe social potential of biodiversity enterprises beoveremphasized: a few specific ecotourism ornontimber forest projects may not necessarily doas much to improve the well-being of local popu-lations as general education and training programs.However, biodiversity business may, by example,help to set, change, or enforce government poli-cies that affect biodiversity.

Issues of Definition

Full agreement has not yet been reached on howto define the central terms currently used to as-sess biodiversity businesses: namely, “biodiversity-

friendly,” “biodiversity-linked,” and “sustainable.”Whether they are defined broadly or narrowly willdepend on one’s objectives and perspective. Thusa “green” mutual fund or venture capital fundmanager,3 a purchaser of tropical wood, the Con-vention,4 and the GEF5 (the financial mechanismfor the Convention) are all likely to use these termsin a slightly different sense. How to define them,especially when it comes to preparing certifica-tion labels or investment guidelines, is a questionthat environmental, industry, consumer, govern-ment, and other stakeholder groups are still try-ing to resolve.

They are hampered in part by the trade-offsbetween conservation and use. Government poli-cies, high interest rates favoring quick mining ofnatural resources as opposed to more sustainableactivities, and other socioeconomic factors oftenmake sustainable approaches unprofitable andunlikely to be adopted. Furthermore, “sustainableuse” is not a panacea that can be implementedwithout complementary government policy andstakeholder participation.

One definition of sustainability proposed re-cently is “taking care of capital and living off theinterest.”6 Other definitions would take into ac-count the possibility for substitution betweentypes of capital assets and on that basis distin-guish between “weak,” “strong,” and “sensible”sustainability.7 By sensible sustainability they meantransformations of natural into human or man-made capital that will not pose a threat tosustainability if they stay within the critical levelsof each type of capital. But the critical limits foreach type of capital are not always known, so “itbehooves the sensible person to err on the sideof caution in depleting resources (especially naturalcapital).”8 The advantage of using “weak” and “sen-sible” definitions of sustainability is that they donot suggest the need to freeze or preserve all natu-ral resources at existing levels.

What constitutes “sustainable” or more simply“low-impact” operations has been the subject of agood deal of research in forestry and agriculture.To illustrate the complexities of the issue, forestryexperts cite the example of an operation that minesone high-value tree species (which may not besustainable in the sense that the particular speciesis difficult to replace owing to regeneration char-


acteristics or economic factors) but leaves the restof the forest and its biodiversity values intact.9

Should this be termed “sustainable” or “low-im-pact” or “wise-use” forestry? Should it be certifiedas a biodiversity-friendly operation? Furthermore,researchers caution, not all management plansbased on inventories, directional felling, harvestinspection, and impact minimization and enforcedby regulation necessarily conserve biodiversity.Nor can the term “sustainable forestry” automati-cally be taken to indicate biodiversity-friendly orconserving practices. Similar caveats apply in othermarket sectors. An ecotourism venture, say, maybe certified as following best practice, but if itbrings tourists to areas that previously had fewvisitors, it may also have an adverse impact onthe natural habitat and local people. Or supposethat organic agriculture is subject to certificationbut it is not sufficient to establish a biodiversitylinkage: in other words, the operation may becertified to plant organic coffee but in doing so itmay cut down primary forest and thus have anegative impact on biodiversity.

To be classified as biodiversity friendly, busi-ness practices should meet some or all of the cri-teria outlined in this chapter. The definitions andcriteria will be refined over time as informationfrom research and from business experience in-creases. Some businesses will do better than oth-ers at trying to maximize both profitability andconservation objectives. Investors waiting for aclear-cut definition of sustainability to follow be-fore investing in biodiversity businesses may waitin vain. Consumers and buyers are seeking andpurchasing “green” products now. In response tothis demand, industry groups, NGOs, scientists,and governments are scrambling to definebiodiversity best practices and to draw up guide-lines for certification labels. There will be no in-put on which to base the guidelines unlessbiodiversity businesses of all types are attempted.

Practices That Conserve or SustainablyUse Biodiversity

Thus far, all definitions of biodiversity-friendlypractices mention both conservation and the sus-tainable use of biodiversity. The Convention em-

phasizes both. In certain cases (national parks,nature preserves, wilderness areas), resources canbe conserved only if they are preserved intact andmore or less left unchanged or undisturbed. Inother cases, biodiversity conservation consists ofa wide variety of interactions—between humanconsumers and users, on the one hand, and bio-logical and ecological resources, on the other—that put those resources to use but also ensuretheir sustainability. Some uses, such as farming,depend on those resources (e.g., genetic variety,genetic sources, and ecosystems) for their long-term success. Unfortunately, unless they have anincentive to do otherwise, many users—especiallypeople who are hungry and poor or who seekfinancial profit—will give little thought tosustainability as they expand farmland, cut for-ests, or pollute natural habitats. Conservation ef-forts must therefore extend across a wide rangeof habitats, from publicly financed reserves andnational parks to agricultural and urban landscapes.

Although a succinct definition of biodiversity-friendly practices has yet to be formulated, suchpractices do the following:

• Employ low-impact or minimal disturbancemethods—such as certified organic agriculture andsustainable forestry—that produce a variety of in-terdependent crops, husband organic and soil re-sources, reduce the use of agrochemicals, andmaintain buffer areas of natural habitat.10

• Maintain and enhance biodiversity such asorganic agriculture, which relies on a multiple cropstrategy, intercropping and crop rotation, naturalpest management, and soil restoration.

• Extend natural habitats and conduct comple-mentary activities, especially in the buffer zonessurrounding protected areas. Such activities wouldinclude the cultivation of organic/shade coffee; re-forestation, especially with local species that main-tain remnants of native forest; plantation or naturalforest management, which maintains corridors ofnatural forest and animal habitat; and agroforestryof fruit and other economically useful trees andplants that can extend natural habitats. 11

• Ease pressure on critical, threatened bio-diversity resources. By way of example, catch-and-release recreational fishing could take the placeof commercial fishing to allow the populations of


a particular fish species to regain their strength;buffer zone activities and alternative livelihood/employment could take place in areas surround-ing a nature reserve, or agricultural productioncould be concentrated or intensified in a smallerarea than usual to limit encroachment on naturalecosystems.

• Cultivate underutilized agricultural speciesand wild relatives of domesticated species. Thiswould help conserve the agricultural gene pool,alternative crops, and strains of crops.

• Create new market value from extractive, de-rived, or in situ uses of intact ecosystems. Suchuses might include sustainable or low-impact har-vesting of lesser known wood species, new plant-or animal-based chemicals, nontimber forestryproducts, hunting, fishing, wildlife management,ecotourism, and carbon-offsets.

• Finance the conservation of land, coral reefs,or other habitats as an integral part or a by-productof a business venture. One example would be anecotourism project that donates a portion of itsprofits to habitat preservation.

• Actively clean up (as opposed to imposing“end-of-pipe” pollution control) industrial, urban,or agricultural wastes that directly affect criticalhabitats.

Direct and Indirect Impactsof Sustainable Practices

Businesses in each biodiversity market sector canhave a direct impact on the sustainable use andprotection of biodiversity. The degree of impactwill depend more on how a particular project isstructured than on the characteristics of a particu-lar sector. In other words, biodiversity benefits tendto be project specific. Such benefits (or level ofbiodiversity friendliness) can be assessed throughclassic impact analysis, looking at the before andafter cases, and the alternative uses. Impact analysiswould show that cutting down virgin forest to groworganic coffee is not biodiversity friendly. By con-trast, planting organic or shade-grown coffee ondegraded land in buffer zones around natural for-est is biodiversity friendly.12

In some cases the biodiversity link will be clearlyevident, as in the organic/shade coffee example

or in the harvest of NTFPs that provides an eco-nomic rationale for maintaining forest habitat. Inother cases, the link and effects may be uncer-tain. The culture of Amazonian fish, for example,may make use of indigenous species, take pres-sure off wild stock if major buyers switch to aqua-culture, and offer an alternative livelihood tofishermen. But aquaculture might also encouragefurther exploitation of wild fish if the market doesnot distinguish between cultured and wild stock.At times, such effects can be mitigated, in thisinstance by requiring that fish be tagged or thatthe origin of a fish be documented through a “pa-per trail” (as has been done with striped bass inthe United States). Such arrangements may suc-cessfully steer a market to aquaculture.

Impacts can also be indirect. For example,Amazon boat tours and biodiversity prospectingmay not directly protect the rainforest, but suchactivities provide financial reasons and politicalsupport for conservation. Similarly, a recyclingprogram may indirectly remove harmful com-pounds from the environment by channeling themto a hazardous waste incinerator. Or an invest-ment in an NTFP marketing company will pro-vide an additional market outlet for sustainablyharvested products.

Best Practices and Certification

Anyone concerned about biodiversity issues—whether a consumer, exporter, purchaser of rawmaterial, wholesaler, or retailer—will want to beassured that the product involved in a transactionwas in fact produced and processed in accordancewith biodiversity-friendly methods. Also, financialinstitutions that purport to follow biodiversity orenvironmental guidelines need to be able to dem-onstrate to their investors that their investmentsare indeed biodiversity friendly. Because they maynot be able to afford detailed studies of each in-vestment, these institutions are likely to rely inpart on certification to determine whether an in-vestment is biodiversity friendly.

Several market sectors have adopted or aredesigning best management practices to distin-guish their product in the marketplace and to helpensure that its production is sustainable and has


minimal impact on the environment. Such prac-tices are now becoming more common, in re-sponse to regulation, the costs of regulation, andconsumer demand for environmental products.Equally important, businesses are finding that bestpractices enable them to capture the efficiencyand cost savings of improved production. Produc-ers have developed environmental labels, certifi-cation standards, and producer or marketingorganizations to indicate their commitment to suchpractices, which in turn helps promote biodiversitybusiness sectors. The way best practices are de-signed and implemented is of direct interest toinvestors and financial supporters of biodiversityenterprises.

Some producers are certified by an indepen-dent third party; others self-certify. Some standardsare set by industry groups or by industry-NGOpartnerships; others are legislated or adopted bygovernments. A key question for each industry ormarket sector is which of these groups shouldhave the authority to grant certification labels.13

The approach usually depends on the industry ormarket segment, for each has a different culture,history, and relationship with consumers. A criti-cal point to remember is that consumer confidencein the certification standard or label has a greateffect on market growth (and on the level ofbiodiversity benefits).

One of the best-known and widely used certi-fication systems can be found in organic agricul-ture (also known as biodynamic agriculture insome parts of Europe and Latin America).14 In thiscase, the standards are designed by industry asso-ciations. Many countries have one or more indus-try associations or private sector certifiers who usethe association standards in checking and certify-ing a producer’s or processor’s operation.15

Other sectors are developing their own systems.The forestry sector, for one, has designed interna-tionally recognized third-party “sustainable” or“wise-use” standards with the help of the Interna-tional Tropical Timber Organization (ITTO), theInternational Organization for Standardization(ISO), and the Forest Stewardship Council (FSC).Other forestry standards are being promoted byindustry groups and governments. In theecotourism sector, the World Tourism Organiza-tion, the United Nations Environment Program

(UNEP), the Ecotourism Society, and other tour-ism groups have published best practices forecotourism and are working on certification meth-ods. And in the area of aquacultures, the MarineStewardship Council and various groups are work-ing on standards for fisheries and aquaculture.Certification methods are discussed further inChapter 3.

Notes

1. See Time magazine special issue, “Latin Ameri-

can Leaders for the New Millennium,” May 24, 1999,

24–119.

2. See J. W. Clay, Generating Income and Conserv-

ing Resources: 20 Lessons from the Field (Washington,

D.C.: World Wildlife Fund, 1996).

3. Mutual funds managed by Dutch, Swiss, and Ger-

man banks, and several U.S. and U.K. social investment

or environmental mutual funds use environmental crite-

ria in making investment decisions. The Environmental

Enterprises Assistance Fund (EEAF) and Terra Capital

Fund have developed investment guidelines for Central

America and Latin America, respectively.

4. The Conference of the Parties to the Biodiversity

Convention has met four times to discuss the imple-

mentation of the Convention. The documents and pa-

pers produced by the Conference include language on

agrobiodiversity.

5. See GEF Secretariat, “A Framework for GEF Ac-

tivities Concerning Conservation and Sustainable Use

of Biological Diversity Important to Agriculture,” GEF

Draft under discussion, March 1998.

6. D. H. Janzen, “Commercialization of Biodiversity:

Costa Rica’s Guanacaste Conservation Area as a Base

for Development,” paper presented at Commercial Is-

sues of Biodiversity: The Biodiversity Conference for

Business, sponsored by Scientific American, San Jose,

Costa Rica, April 7–10, 1997.

7. See P. Hazel and E. Lutz, “Integrating Environ-

mental and Sustainability Concerns into Rural Devel-

opment Policies,” in E. Lutz, ed., Agriculture and the

Environment: Perspectives on Sustainable Rural Devel-

opment (Washington, D.C.: World Bank, 1998); I.

Seregeldin, Sustainability and the Wealth of Nations:

First Steps in an Ongoing Journey, World Bank Envi-

ronmentally Sustainable Development Studies and

Monographs Series 5 (Washington, D.C., 1996).


8. Seregeldin, Sustainability and the Wealth of

Nations.

9. See R. E. Rice, R. E. Gullison, and J. W. Reid,

“Can Sustainable Management Save Tropical Forests?”

Scientific American, vol. 276, no. 4 (April 1997), 44–

51; P. C. Frumhoff and E. C. Losos, “Setting Priorities

for Conserving Biological Diversity in Tropical Timber

Production Forests,” A Policy Report from the Union of

Concerned Scientists and the Center for Tropical Forest

Science (Washington, D.C.: Smithsonian Institution, July

1998); A. A. dos Santos, M. Nuvunga, and E. Salati, eds.,

Workshop: Forest Policies and Sustainable Development

in the Amazon (Rio de Janeiro: Fundacao Brasileira Para

o Desenvolvimento Sustentavel and UN Development

Program, 1997).

10. See J. P. Srivastava, N. J. H. Smith, and D. A.

Forno, Biodiversity and Agricultural Intensification,

World Bank Environmentally Sustainable Development

Studies and Monographs Series 11 (Washington, D.C.,

1996); S. Pagiola and J. Kellenberg, Mainstreaming

Biodiversity in Agricultural Development: Toward Good

Practice, World Bank Environment Department Paper

15 (Washington, D.C., 1997); L. A. Thrupp, ed., New

Partnerships for Sustainable Agriculture (Washington,

D.C.: World Resources Institute, 1996); T. Clunies-Ross,

“Marygolds, Manure and Mixtures: The Importance of

Crop Diversity on British Farms,” Ecologist, vol. 25, no.

5 (September/October 1995), 181–87; GEF, “A Frame-

work for GEF Activities Concerning Conservation.”

11. D. Current, E. Lutz, and S. Scherr, eds., Costs,

Benefits and Farmer Adoption of Agroforestry: Project

Experience in Central America and the Caribbean,

World Bank Environment Paper 14 (Washington, D.C.,

1995).

12. R. A. Rice and J. R. Ward, Coffee, Conservation,

and Commerce in the Western Hemisphere, Report by

the Smithsonian Migration Bird Center and the Natural

Resources Defense Council (Washington, D.C., June

1996).

13. N. Dudley, C. Elliott, and S. Stolton, “A Frame-

work for Environmental Labeling,” Environment, vol.

39, no. 6 (July/August 1997), 16–20, 42–45.

14. Organic Crop Improvement Association, 1995

International Certification Standards, as revised, Febru-

ary 1995, Bellefontaine, Ohio. Also, see Internet infor-

mation on this group at http://www.qconsulting.com/

ocia/ociahome.htm

15. The International Federation of Organic Agricul-

ture Movements (IFOAM) is the international associa-

tion of organic agriculture organizations.

3The Market:

Biodiversity Business Sectors

13

The markets for sustainably produced productsare thriving, especially in Latin America. Manycompanies, large and small, are already servingthese markets, and the prospects for their growthappear good. This chapter reviews the biodiversitymarket sectors with businesses that make an ac-tive contribution to conservation or sustainableuse: agriculture (including certified agriculture,other agricultural products, and aquaculture), for-estry, nontimber forest products, and ecotourism.Each sector is defined and information providedon the status of best practices and certification,the market (trends, business opportunities, andkey factors), and types of businesses in operationthere.

The discussion does not cover biodiversity pros-pecting, which refers to the extraction of usefulessences or compounds from wild plants and ani-mals. Although this sector may someday developinto a major industry, only a few “pure play” pri-vate sector companies and investment opportuni-ties are present there at this time. Most of theseenterprises are research institutes and large phar-maceutical, agricultural, and cosmetics companies.

Introduction to Markets

Market Transformations

Notable changes are taking place in various partsof the agriculture, forestry, and tourism sectors:enterprises are moving away from destructive

forms of production and operation toward envi-ronmentally sensitive practices. These markettransformations are driven by market demand,operational benefits, added value, and regulation:

• Market demand. Growing environmentalawareness among industrial or commercial cus-tomers (e.g., in forest products) and end-use con-sumers (e.g., in food products) in the industrialand developing worlds is creating a strong de-mand for environmentally sustainable products.1

Businesses are discovering a wealth of attractivegrowth opportunities and market niches for theseproducts.

• Operational benefits. Enterprises of all sizesnow recognize that adopting environmentallyfriendly processes carries important benefits, in-cluding cost savings, reduced liability, and moreeffective environmental risk management. Theterm used to describe the operational gain whenproduction processes move in this direction (bypolluting less and by reducing, recycling, and re-using waste products) is “ecoefficiency.”2

• Added value. In the past, the private sectortended to perceive environmental requirementsas costs that reduce profitability. However, moreand more businesses have come to believe thatconcern for the environment generates opportu-nities for adding value to investment. That con-cern leads enterprises to make better use of assets,promotes market restructuring, and encouragespartnering with stakeholders. All these endeavorshelp increase sales through positive image, give


rise to new products that solve problems and re-spond to market transformations, create new brandnames, and provide competitive advantage.

• Regulation. Conflicting government policiesand regulations or poor enforcement thereof canhave a negative effect on biodiversity, as demon-strated in many parts of Latin America (e.g., insubsidies, land use, and import/export controls).3

With the increasing emphasis on environmentalgoals, however, sustainable approaches may be-come a requirement for gaining access to a par-ticular resource (e.g., a forestry reserve). Forestreserves have already been established in Brazil,and there are reserves for ecotourism in Peru andChile and a biodiversity institute in Costa Rica.4

Market Trends

As the statistics in this chapter demonstrate, thegrowth prospects for biodiversity markets appearto be strong. In the food sector, for instance, cer-tain companies are positioning themselves to at-tract environmentally conscious consumers.Among these are tuna-processing firms in theUnited States and Europe, many of which nowproduce brands certified to be dolphin-safe, aswell as mainstream mass-market firms that haveacquired organic food companies. Major European,U.S., and Japanese companies are also buyingorganic agricultural supplies in increasing quanti-ties, notably from Latin America. And environmen-tally friendly goods now include tropical timber,guitars, bananas, and seafood.

Supporting Infrastructure

These nascent sectors will benefit not only frommarket demand, but also from the infrastructureemerging in support of biodiversity investments.This consists in part of networks of universities,research centers, extension services, industry as-sociations, and Internet services becoming estab-lished in each market sector. In addition, dozensof public or nonprofit institutions—NGOs devotedto conservation, foundations, and bilateral andmultilateral agencies—have been actively seekingand participating in economically self-sustaining

biodiversity projects.5 Governments, too, are in-troducing policies to encourage biodiversity in-vestment, recognizing that such businesses canmake a positive contribution to the nationaleconomy.6 In Latin America, nature tourism nowaccounts for 25% of Belize’s GNP,7 while CostaRica has established itself as one of the leadingecotourism destinations. In addition, the govern-ment of Costa Rica has made “sustainable devel-opment” the centerpiece of its businessdevelopment, natural resources management, ag-riculture, health, and education programs.8 Brazilhas launched its “Green Protocol” program aimedat encouraging industrial companies to complywith pollution control laws, and its governmentpledged in 1998 to designate 25 million hectaresof Amazon forest protected land by 2000 as partof a joint initiative with the World Bank and theWorld Wildlife Fund.9


Definition

The term “sustainable agriculture” refers to a sys-tem of agriculture that has a low impact on theenvironment which is achieved through somecombination of organic fertilizers, crop rotation,integrated pest management, minimal or no useof chemical and pesticide inputs, and the recy-cling of waste materials.10 While these systems maynot restore the biodiversity of an original naturalhabitat, they maintain a higher level of biodiversitythan conventional agriculture: they enhance soilfertility, encourage higher levels of soil fauna, pro-vide habitats for bird and insect species, and aimfor greater genetic diversity in crops. They alsocontrol runoff or the seepage of chemicals so asto avoid contaminating local water courses andmake efforts to maintain aquatic biodiversity.

Sustainable agriculture can be divided intoroughly two types: “certified organic” and “low-input” agriculture. Certified organic agricultureproduces crops without man-made chemicals orsynthetic inputs (inorganic fertilizers, pesticides,or herbicides), and its techniques include mini-mal soil tillage, crop rotation or intercropping,integrated pest management, and soil fertility res-

The Market: Biodiversity Business Sectors 15

toration. One of its primary goals is to enhanceon-site and surrounding biodiversity. While pro-duction per hectare may be lower (although notalways) and labor costs higher than with conven-tional practices, profit margins and return on in-vestment may be higher as chemical costs andthe cost of applying chemicals are eliminated,certain market risks are reduced (e.g., a productdoes not stand to be rejected because of chemicalcontamination, as happened in the case of Chil-ean grapes), niche market prices are higher, andorganic certification is required for market accessand shelf space in certain stores.11

“Low-input” agriculture uses some of the in-puts forbidden by an organic regime, but it ap-plies them in moderation. This approach, likecertified organic agriculture, is geared toward sus-taining food production without adverse effectson the environment. Latin America, with its largeland area devoted to agriculture, provides sub-stantial evidence that this sector has a significantimpact on biodiversity.

Best Practices/Certification

Most Latin American countries have one or morecertification organizations. These groups are af-filiated with the International Federation of Or-ganic Agriculture Movements (IFOAM), and theyuse the standards of European and/or North Ameri-can organic industry groups for export products.12

The standards used in the United States and inEurope differ slightly, and standards have not yetbeen developed for all crops. Several U.S. stategovernments (one being California) have adoptedspecific organic standards, and the U.S. Depart-ment of Agriculture, following industry recommen-dations, recently proposed tentative nationalorganic standards.13 IFOAM, the United States, andEuropean governments, as well as the EuropeanUnion, are attempting to harmonize organicrequirements.

Other labels follow standards similar to organicones but allow some agrochemical use. An ex-ample would be the ECO-OK label that RainforestAlliance, a U.S. NGO, applies to bananas grownin Central America.14 Migros, the Swiss supermar-ket cooperative, has long had its own environ-

mental label for products coming from Swiss farm-ers who follow Migros best practices, which dis-courage the use of chemicals.15 The coffee industryprovides many examples of certified organic prac-tices, as well as guidelines and marketing labelsfor fair trade and “shade-grown” coffee.16

The Market

The sustainable agriculture sector is supported bya variety of existing markets, technology, infra-structure, and services. With the sector’s recentgrowth, mainstream supermarkets are entering thenatural foods business, supply links are becom-ing more sophisticated, and acquisitions and con-solidation are increasing. The sector includesfast-growing medium-sized producers, larger farmsand processing companies converting to organicproduction or adding organic lines, and producercooperatives linking with processing and market-ing companies. Certified organic crops and value-added products include coffee, grains, cacao, oliveoil, fruits and vegetables, beef, and cotton. Thedemand for organic bananas, tropical fruit purees,and temperate zone tree fruits (fresh or processed)is so great that it cannot yet be met. Because thearea devoted to agriculture in Latin America is solarge and continues to expand, sustainable agri-culture has important implications for the region’sbiodiversity.

The Organic Crop Improvement Association,the largest association of organic growers in theworld, has 20,000 members in Latin America.17 InBrazil, many small organic farmers have formedcooperatives for marketing and distributing theirproducts, and many sell directly to the public atopen markets in São Paulo and Porto Alegre.18 Asmall number have begun adding value to theirorganic produce by producing nonperishable itemssuch as flour and granola.

The world’s largest organic market is found inEurope: sales there rose from about US$4.0 bil-lion in 1993 to US$6.8 billion in 1995 (the latestyears for which figures are available).19 Leadingthe mainstream demand for organic products inthis market are the United Kingdom, Denmark,the Netherlands, and Germany. Large retailers inAustria (Billa and Spar), Germany (REWE), France


(Monoprix, Carrefour), Switzerland (Migros andCoop), Sweden (ICA and Konsum), and the UnitedKingdom (Sainsbury) are boosting sales by intro-ducing more organic products. Lufthansa andSwissair now offer organic meals to their passen-gers, and more hospitals, universities, and gov-ernment institutions, especially in Germany,include organic meals in their food services. InLuxembourg, one can even find packaged organicbread in gas stations.

Another group bringing in organic supplies isthe Fair Trade Movement (e.g., Max Haavelar),which represents 5–10% of coffee markets in Ger-many and the Netherlands. A 1995 survey of Dutchconsumers indicated that 84% of respondents as-sociated high quality with the Max Haavelar certi-fication label.20 Germany has been another strongsupporter of the organic movement: thegovernment’s development agency (GTZ) hasfunded organic agriculture conferences andprojects in Latin America;21 and according to theGerman Marketing Board for Agricultural Prod-ucts, in 1996 more than 60% of all German house-holds had incorporated organic products into theirregular buying patterns. Approximately 50% makeweekly purchases, and 56% of German consum-ers are willing to pay 15% or more in premiumsfor organic products.22 Denmark, too, shows aproactive pattern, with the government now push-ing all of its farmers to adopt organic productionmethods by 2005.23

In the United States, sales of certified organicagricultural products rose at an average annualrate of more than 20% between 1990 and 1999—total sales jumped from US$1 billion in 1990 toover US$5 billion in 1999—and today organic/natural food supermarket chains are expandingrapidly.24 Many U.S. companies rely on SouthAmerica for raw and processed ingredients suchas organic sugar, berries, tropical fruits, and out-of-season temperate zone fruits.

The growth of the organic market in the UnitedStates is particularly evident in the expansion oforganic/natural food supermarket chains and inthe increasing stocks of organic foods in tradi-tional supermarkets, especially organic baby food,fruits, and vegetables.25 With the recent mergersamong natural foods stores, distribution channels

now have a larger reach and greater efficiencies.After acquiring Fresh Fields and a number of otherchains, Whole Foods, Inc., an organic/natural foodssupermarket chain based in Austin, Texas, is ex-pected to have 100 stores and annual sales ofUS$1.5 billion by the year 2000.26

This strong performance is not so surprising inview of the 20–25% growth rates posted by natu-ral food companies in the United States. Indeed,the natural foods industry is expected to continueto grow rapidly and is likely to see other strategicacquisitions. Companies in this niche commandthe highest retail prices, offer high-quality foods,and have good relationships with suppliers andretail stores. Thus these companies are expectedto outperform other companies in the food sec-tor, may be priced at higher multiples, and arelikely to have higher investor returns.27 Althoughthere is little published information on returns forprivately held production and processing compa-nies in the United States, which resemble theprojects of greatest interest to investors in LatinAmerica, anecdotal evidence and data from in-dustry analysts indicate that returns could begood.28 These prospects have led investmentgroups and companies focused on natural foodsto acquire firms and brand names in the sector.29

Although precise figures are not available forJapan, purchases of certified organic products fromcompanies in the United States and in Brazil havegone up, especially in the wake of recent foodscares in Japan. The market for organic productsis thriving within Brazil as well: the country’s threelargest supermarket chains now feature organicfruits and vegetables and dairy products.30

Types of Businesses

Latin America offers opportunities for various kindsof biodiversity business. According to a feasibilitystudy for Terra Capital Fund, a biodiversity in-vestment fund for Latin America, the number ofbusinesses in agriculture alone are numerous andexceed those in all other sectors (see the Appen-dix). Furthermore, agricultural markets, technol-ogy, infrastructure, and support services are allreasonably well developed. The sector includes


fast-growing, medium-sized organic producers,with some larger farms converting to organic pro-duction along with many producer cooperativeslinked with processing and marketing companies.Hence Latin America has tremendous potential asa source of organic products. Also, pesticide useis low in many areas, sometimes because produc-ers cannot afford agrochemicals.

The countries of Latin America already haveorganic agriculture associations and one or morelocal certification agencies. There are also a fewlarge growers in the region. Brazil, Argentina, andChile have about 20 medium-sized growers each;Costa Rica has a few. Most countries have thou-sands of small growers, many feeding their prod-ucts into cooperative processing and marketingorganizations. Medium to large operations tendto be family owned.

Other Agricultural Crops andUnderutilized Species

Definition

Biodiversity benefits in the agricultural sector de-rive not only from organic production, but alsofrom the cultivation of underutilized species andwild relatives of domesticated species.31 As theUN Food and Agriculture Organization (FAO)points out, only 120 of the 30,000 known edibleplant species are cultivated for food today, themost successful being rice, corn, wheat, sugar cane

and beets, which together account for two-thirdsof plant-derived human food.32

If these major agricultural crops are to survive,their genetic stock must be replenished from wildand little-used related species when it is threat-ened by pests or disease. Plant material of thisnature is already being preserved in gene banks.In addition, underutilized species may be suitablefor land not under cultivation or for degraded orarid land. Such species may also have importantbut as yet undiscovered or little-explored phar-maceutical, cosmetic, industrial, or nutritional uses.Even agricultural wastes can have biodiversitybenefits if recycled into commercial products suchas paper, or animal feed.

Among the underutilized species of growing in-terest to farmers and investors are jojoba, a desertplant of the southwestern United States and Mexico,the oil of which can be used as a lubricant formachinery and for cosmetic products; salicornia orsamphire, another desert plant high in oil and li-noleic acid (a healthy polyunsaturated fat); andnatural cottons and other fibers that can be used inthe manufacture of clothing, mats, and other prod-ucts. Some species of herbs, spices, and flowers—such as aloe, vanilla, and essential oils derived from

Box 3.1. Organic Agriculture in Argentina

A 1996 report by Argentina’s Ministry of Agriculture de-votes an entire page to each of 23 mid- to large-sizedcompanies producing and exporting certified organic prod-ucts. These companies grew apples, pears, beef, soybean,corn, sunflowers, and olive oil on about 150,000 hec-tares in 1996, up from 10,000 hectares in 1992. Severalcompanies are seeking long-term investment capital forexpansion.

Box 3.2. Organic and Shade-Grown Coffee

Several medium- to large-sized coffee growers in Brazilhave converted or are considering conversion to certifiedorganic production. Industry experts report attractive re-turns on investment for Brazil’s organic coffee and notethat Japanese trading companies are buying or establish-ing organic coffee farms in Brazil. Smaller operations mayalso develop, along the lines of two U.S. organic coffeemarketing and distribution companies that have estab-lished joint ventures with coffee cooperatives and roast-ing facilities in Mexico, Peru, and elsewhere. These U.S.companies each have several million dollars in annual sales.According to published reports of several NGOs, shade-grown and organic coffee offers numerous bidoversitybenefits: such enterprises extend the natural forest, pre-serve animal habitat, employ low or no chemical inputs,and recycle their waste products.


shrubs and flowers (e.g., geranium, tea, lavender)—have already proved useful in the manufacture of“natural” health care or beauty products.

A great variety of underutilized plant and ani-mal species can be found in Latin America, whichis also a genetic reservoir for many commerciallyvaluable species. The Andean region, for example,is home to native roots, fruits, grains, vegetables,and legumes whose domestication dates back topre-Colombian times and some of which maypresent investment opportunities today. Some ofthese crops—finger millet, lucuma, quinoa, andoca—are particularly suited to highland cultivation.Examples of the more popular and established prod-ucts are cacao, bananas, coffee, macadamia nuts,and carrots, which are also among the largest crops.All of these crops offer biologically diverse variet-ies. Other important products in the region includetropical fruit trees, which can also be used to refor-est degraded land; native palms, which supplydomestic and export markets with hearts of palmand palm oil; wool cultivated from ranching nativeanimal species such as llama and alpaca in theAndes; amaranth, a grain and vegetable crop popu-lar in ancient Latin America; and relatives of thefew widely cultivated crops found in the wild ormaintained at international, national, university, orprivate research institutes, such as potatoes in Peru.Some of these products may also be nontimberforest products, as explained in a later section.


Many of the foregoing may be certified as “or-ganically grown” products.

The Market

Market figures for underutilized species are nottracked by the industry. These products may beincluded in organic agriculture or natural foodsproducts.

Types of Businesses

The businesses include a range of agriculturalventures similar to those discussed in the categoryof sustainable agriculture.

Aquaculture

Definition

Although aquaculture is a form of agriculture, it istreated separately here because its principal inputis water rather than land. The term refers to thecultivation of marine or freshwater aquatic spe-cies (such as fish, crocodiles, turtles, shrimp, andseaweed) in captivity, either in ponds or in cagesor other structures in open waters. Aquaculturehas been practiced for centuries in many parts ofthe world, notably China and other parts of Asia.Now it is being looked at in a new light, as ameans to address biodiversity loss:

• Since aquaculture itself can be adversely af-fected by poor water quality, lack of natural bufferareas, and pesticide and urban runoff, the indus-try has a long-term economic interest in maintain-ing the natural ecosystem functions of thesurrounding environment.

• In some cases, aquaculture can substitute forwild caught species and thus reduce overfishingand restore wild stocks (fish, crocodiles, turtles,shrimp).33 Shellfish farming, for example, may helpto repopulate depleted native stocks and providean economic incentive for maintaining a region’swater quality. Farming of native scallops and othermollusks is well developed in Chile, and pilotprojects of this nature are under way in Brazil.34

• Underutilized local species can be grown inculture, as demonstrated in Brazil, where aqua-culture farms have begun raising Amazonian fishin place of African perch. Brazil’s research insti-tutes and private companies are also cultivatingsome of the larger Amazon and Paraguay/Paranabasin fish threatened by overfishing and habitatdestruction, notably, the fish known as pirarucuin Brazil (peche in Spanish-speaking countries),tambaqui, matrinxa (Brycon sp.), and pacu.35 Ma-turing technology and training programs have re-cently given farmers the confidence to enter thisindustry.36

Best Practice and Certification

Like most agricultural practices, aquaculture of-ten has an adverse effect on biodiversity.37 Best


practices can reduce this problem and at the sametime achieve more efficient production. The tech-nical literature offers abundant information on bestpractices in water use and discharge, water useminimization, siting and coastal zone management,the use of chemicals and drugs, and guidelinesfor nonindigenous species.38 These practices con-tinue to improve with the help of experience andnew techniques, and some can clearly be describedas sustainable or biodiversity friendly. Neverthe-less, unsustainable practices remain in use becauseof the possibility of earning high profits over theshort term (three to four years) for some species

Box 3.3. The Shrimp-Farming Experience

Shrimp farming has caused environmental damage andsocial disruptions: cutting mangroves, altering coastal wet-lands, overharvesting wild post-larvae to stock shrimpponds, and pushing local peoples out of traditional landuses. These practices have in some cases made shrimp farm-ing unsustainable: too many farms in one area, poor man-agement practices, the movement of shrimp from one areaor continent to another (transferring shrimp viruses), andthe lack of coastal zone management (too many farms inthe wrong locations) combine to stress the shrimp withnaturally occurring and imported shrimp diseases. The dis-eases can wipe out a crop or stunt the growth of the shrimp.The disease syndromes have thrown shrimp farming intocrisis worldwide.

Latin America is no exception. Shrimp aquaculture hasgrown rapidly in Ecuador and Central America and is ex-panding in Brazil. Until five years ago, profit margins percrop for some operations were very high (although riskswere also high). However, the best shrimp farms in Ecua-dor and Central America are currently breaking even ow-ing to the taura syndrome, white spot, and other diseases.The spread of disease has pushed some shrimp farmers inLatin America to adopt more environmentally sensitive tech-niques. While some farmers overstock post-larvae to com-pensate for loss, others are adopting a variety ofdisease-prevention measures and more environmentally sen-sitive production methods (careful selection of hatcherystock, better hatchery and growout practices, careful sit-ing of farms [no crowding], lower stocking densities). Theshrimp industry is experiencing growing pains familiar to

other agricultural sectors. Techniques for working with dis-ease and stress are being developed, and best manage-ment practices are gaining wider industry acceptance. Inthe Gulf of Fonseca in Honduras, for example, the shrimpfarmers association, NGOs, and the government plan toset up large areas of mangrove reserves. Because of thelarge size of the shrimp farming industry, the widespreadadoption of best management practices may have a ben-eficial impact on local biodiversity.

Sources: J. Tobey, J. Clay, and P. Vergne, The Economic, Envi-

ronmental and Social Impacts of Shrimp Farming in Latin America,

University of Rhode Island, Coastal Resources Center, Coastal

Management Report 2202 (University of Rhode Island,

Narragansett, June 1998); discussions with shrimp farming indus-

try experts, 1998; “Shrimp Farming Going Swimmingly,” Econo-

mist, February 21, 1998, 80–1; C. Browdy and S. Hopkins,

“Swimming through Troubled Waters,” Shrimp News International,

(May/June 1995), 9–11; “World Aquaculture ‘96 and the Bangkok

Seafood Show,” Shrimp News International, January/February

1996, 14–15; “Shrimp Farming in Nicaragua,” Shrimp News In-

ternational, March/April 1996, 1, 2, 14, 15, 16; “Shrimp Farming

in Ecuador in 1994,” Shrimp News International, March/April 1995,

3–4; “Resistant Strains of Vannamei and Stylirostris in Venezuela

and Colombia,” Shrimp News International, November/Decem-

ber 1995, 4; C. Lightfoot et al., “Aquaculture and Sustainability

through Integrated Resources Management,” ICLARM Contribu-

tion 948, Outlook on Agriculture, vol. 22, no. 3 (1993), 143–50;

“Honduran Shrimp Farmers Avoid Environmental Problems,”

Shrimp News International, May/June 1994, 3–4.

and because of the lack of education, technicalknowledge, or technical/extension services.

In response to NGO pressure and the need fora coordinated response to disease and other ani-mal husbandry issues, several industry and indus-try/NGO associations have taken steps to introduceaquaculture standards and certification:

• The Global Aquaculture Alliance, an indus-try association with a keen interest in shrimpfarming, was formed in 1997 to educate the pub-lic and the aquaculture industry and to “developa comprehensive set of standards to further en-


vironmentally acceptable aquaculture.”39 TheAlliance’s founding members include aquaculturecompanies, food and restaurant companies, andnational aquaculture associations from at leastsix Latin American countries, the United States,and Thailand.

• Several producers are experimenting withorganic certification of aquaculture products, andseveral U.S. and European organic agriculture as-sociations are developing organic aquacultureguidelines.40

• The Marine Stewardship Council (MSC),started by Unilever and the United Kingdom’sWorld Wildlife Fund, is developing guidelines formarine fisheries similar to those of the Forest Stew-ardship Council.41 The MSC may add aquacultureat a later date.

• In October 1995, the FAO adopted a code ofconduct on responsible fisheries.42 The code setsenvironmental and technical standards for theindustry.

The Market

One of the world’s fastest-growing agriculturalsectors, aquaculture accounts for roughly 20% ofworld fish output. In 1996 world aquaculture pro-duction totaled 34.12 million tons, valued at morethan US$46.5 billion.43 As global wild catches de-cline or remain stable, and as consumers showgreater preference for fish over meat, the aqua-culture industry is expected to play an increasingrole in meeting the demand for foodstocks from agrowing world population.

FAO statistics on the decline in wild catch andincrease in aquaculture sales in the world fishmarket suggest that aquaculture will outstrip wildcatches early in the new century (see Figure 3.1).44

In some countries where certain species can nolonger support commercial fishing, these speciesare being reserved for sport fishing.

Latin American markets, both local and export-oriented, are responding strongly to the risingdemand for aquaculture products. In 1996, aqua-culture production in Latin America and the Car-ibbean reached a record level of 614,000 tons,which accounted for 1.8% of the world total andwas valued at US$1.95 billion, or 4.2% of total

world value.45 Two prime examples of the signifi-cant expansion in export-oriented aquaculture inthe region are Chile, now the world’s second larg-est producer of salmon, and Ecuador, a majorproducer of shrimp. Other segments of the indus-try—such as freshwater fish, mollusks, and aquaticplants—have shown slower growth, but they arestill in the early stages of development. LatinAmerica will likely experience even greater de-mand for its aquaculture products as fast-foodchains (for local consumption) and food compa-nies (for exports) seek additional supplies of theseproducts.

Types of Businesses

Notable centers of aquaculture production in LatinAmerica are Chile (salmon, mollusks), Ecuadorand Mexico (shrimp), Colombia (various products),and Brazil (freshwater fish, mollusks). Businessesinclude production, value-added processing, feedmanufacture, and technical consulting.

Sustainable Forest Management

Definition

Sustainable forestry refers to various systems ofmanagement that permit selective harvesting ofwood from forests without undermining their useby present and future generations and withoutharming the biodiversity therein. More than halfof the world’s biodiversity exists in tropical for-ests, although they cover only 7% of the earth’ssurface.46 Temperate and boreal forests, whichcover nearly 10% of the earth’s surface, are alsovaluable harbors of biodiversity. Yet the variousbiota in these regions remain under threat asmany primary forests are still being cut for fire-wood and logs and cleared for rubber and palmplantations or for other agriculture. Uncertain landtenure and taxation/subsidy policies permit cut-ting in many areas. Some countries have enactedlaws restricting cutting in primary forests but lackthe power to enforce them.47 Long-term projec-tions point to an increasing demand for wood(the Asia financial crisis notwithstanding). This


demand will have to be met by new plantations,or the pressure on primary forests will continue.Asian logging companies, for example, have al-ready moved beyond Asia into the other remain-ing stands of primary forest, in the Amazon, theCongo Basin, and Russia.48


“Sustainable” or “wise-use” forestry operations arenoted for their careful mapping, planning, andselective logging, all of which help reduce dam-age to other trees and plants, cut fuel costs, leavemore trees for later harvest, and require muchless cutting per hectare for the same return oninvestment.49 Sustainable management can beapplied in existing forests, plantations of mixedlocal species on degraded land, and monocultureplantations. Each category of forest requires aparticular system of management, depending onthe intended output and the species that it con-

tains. Sustainable forestry makes stakeholdersaware of the ongoing value of the forest, therebycreating incentives for its conservation.

Owing to public concern over the loss of for-ests, a small but growing number of timber pro-ducers worldwide are developing and adoptingsustainable forestry techniques. Timber that is cer-tified as having been produced by such techniquesis known as “certified” or “green” timber. Throughthe collaboration of environmental and timber in-dustry groups, scientists, and bilateral and multi-lateral institutions, an effort is currently under wayto develop broadly accepted definitions of sus-tainable forestry. Organizations involved in thisendeavor include the Forest Stewardship Coun-cil, the International Tropical Timber Organiza-tion, and the International Organization forStandardization to develop broadly agreed defini-tions of sustainable forestry. Production standardsare similar in some ways to those for organic ag-riculture. Under schemes designed by these orga-nizations, an independent third party or a producer

Figure 3.1. Trends in World Fisheries, 1900–2040

Production (million tonnes)

160

140

120

100

80

60

40

20

01900 1920 1940 1960 1980 2000 2020

Year

World populationWild catch food fish production

Aquaculture fish production

Population (billions)

2040

0

1

2

3

4

5

6

7

8

9

Source: FAO.

10180


using audited environmental management systemsis able to certify and label forest products thatmeet these standards.50

Some standards are intended to conserve orreestablish biodiversity in forest areas. They mayrequire a project to set aside a percentage of theconcession or managed area as a reserve, to main-tain as such any existing remnants of native forestand wildlife corridor, to use techniques that willprotect or regenerate the habitat of threatenedspecies, and to plant and/or harvest a greater rangeof species so as to conserve natural diversity. Otherstandards may help to conserve biodiversity indi-rectly, as in the case of the careful mapping oflow-impact harvesting regimes.

Best practices may increase a firm’s costs or beunprofitable because of high interest rates or re-strictive government policies. Even so, such prac-tices will continue to be competitive in situationswhere regulations and market forces work in theirfavor. For example, government regulations maydeny the right to access unless best practices are

followed; in such a case, a certified company wouldbe able to obtain concessions and buy land,whereas nonsustainable operators would be shutout. Best practices would also ensure market ac-cess in countries where commercial and end us-ers want to buy certified wood. Furthermore, acertified company might gain market share morereadily than noncertified competitors.51

Some best practices are already part of the stan-dard operating procedure for several companiesin Latin America. For example, large plantationsof eucalyptus on degraded land in Brazil seek topreserve the remnants of natural forest that pro-vide fire and pest protection for the adjacentmonoculture plantation areas.52

Other countries and forest organizations areadopting similar standards—whether their ownor those of the FSC—along with sustainable for-estry objectives. The government of Sweden, forone, has pledged to put all of its country’s for-ests under FSC-approved harvest methods. TheITTO, for another, has incorporated industry-

Box 3.4. The Forest Stewardship Council

The FSC is an international and independent organizationdominated by NGOs, with some industry representation.The FSC has designed criteria for sustainable forest man-agement and trains and certifies third-party labelers in theapplication and monitoring of these standards. At least sixcertification organizations have been accredited by FSC touse the FSC logo. By January 31, 2000, more than 120forest products companies in 25 countries in Africa, Asia,Europe, and the Americas had sought and received FSCcertification, bringing the total area certified to 17.7 mil-lion hectares (up from 2.3 million hectares in 1996). So far,most of the FSC-accredited forests are in Europe and theAmericas. Countries in Latin America with FSC-certifiedforests include Brazil (with 1.4 million hectares), Bolivia(660,000 hectares), Mexico (143,000 hectares), Costa Rica(36,400 hectares), Honduras (20,000 hectares), Paraguay(16,000 hectares), Guatemala (46,000 hectares) and Belize(96,000 hectares).

FSC certification has gained some market acceptance,in part because it enables retailers to focus their advertis-ing and educational efforts on one standard and thus avoid

confusing the consumer with multiple labels. This strategyhas proved successful for firms such as B&Q in the UnitedKingdom. The FSC method not only certifies the manage-ment of forests but also traces the wood to its consumer.This function will become increasingly important becauseit ultimately gives the forest owners and managers infor-mation about the demand for certified products. This sys-tem will serve to stimulate certified forestry, as managersare given the economic incentive to provide for the grow-ing demand of sustainability-minded consumers.

Sources: Update of July 31, 1999, on the Forest Stewardship

Council web site, www.fscoax.org. See also R. Crossley et al.,

“WWF: Global Forestry and Finance Initiative,” Report to WWF

1998; J. Polak et al., Sustaining Profits and Forestry: The Busi-

ness of Sustainable Forestry (Chicago: John D. and Catherine T.

MacArthur Foundation, 1997); “Forestry: From Poachers to Game-

keepers,” Economist, August 22, 1998, 64; Knight, “Save a For-

est—Use Bar-Codes,” Tomorrow, April–June 1995, 68–69; Knight,

“United by a Common Purpose,” Financial Times, September

13, 1995.


specific criteria for forest management into theISO 14000 series of environmental systems stan-dards.53 In addition, the organization’s “Year 2000Objective” calls for producer member countriesto create a market of only sustainably harvestedinternationally traded tropical timber by the year2000. This objective has been upheld across theAmazon basin in the form of the “Tarapoto Pro-posal.”54 Additional pressure may come from theinitiative launched by the WWF and the WorldBank. These organizations are committed toworking together to establish 50 million hectaresof new-forest protected areas by 2005, and toencourage the independent certification of 200million hectares of sustainably managed forests(including 100 million hectares of tropical for-est) also by 2005.55

Some of the emerging technologies may alsohave a positive effect on sustainable forestry prac-tices and profit margins. These include

• new uses of wood waste (especially hard-wood and softwood trim ends and “shorts”);

• microthin veneering;• new methods of drying and laminating wood,

which are particularly useful for firms wheresmall charges, energy efficiency, and cost-effectiveness are major concerns;

• low-impact wood harvesting;• wood product coding, used to track a

product’s chain of custody;• new methods of sawing suited to lesser-

known and/or underutilized wood species;and

• new ways of hardening wood that can in-crease the overall value of lower-grade soft-woods and hardwoods used in value-addedprocesses.

The Market

While certified products represent only 1–5% oftotal forest products, some industry observers pre-dict that certification will soon become wide-spread.56 Companies are facing mounting pressurefrom buyers, customers, and stakeholders, espe-cially in northern countries, to operate in a moreenvironmentally and socially responsible manner.Market demand and public pressure are not the

only forces behind this move. Some companiesand even some countries (e.g., Sweden)57 areadopting certification as part of a total qualitymanagement (or ecoefficient) approach to pro-duction. They believe that some sort of certifica-tion will eventually be required for market accessand may be positioning themselves to maintainor gain market share. Operational benefits (costsavings, employee morale) and public relationsbenefits are also contributing factors.

The path to a market for certified forest prod-ucts remains rocky, however. Although the de-mand for certified products appears to be growingin northern Europe, as yet little consumer inter-est is evident in North America. As with other cer-tification programs, false claims of sustainability,self-certification, and a plethora of ecolabels maybe confusing buyers. To gain a better sense ofthe overall trends in the wood products indus-try, one needs to examine, first, the supply sideresponses, most notably in Latin America, whichis where a great deal of the action is occurring;and, second, the demand side responses, whichis to say, the major buyers moving the markettoward certification.

Supply-Side Responses in Latin America. Forestindustries in Latin America are poised for growth:whereas log production in Africa, Asia, and NorthAmerica is declining,58 the markets for LatinAmerica’s forest products are growing at the rateof about 2% a year, in tandem with the worldeconomy.59 This figure masks distinct regional dif-ferences, however: in the developed world, de-mand is growing, but at a fairly low and steadypace; in the developing world, with its rapidlyexpanding populations and economies, the de-mand for wood products is strong. Although thefinancial crisis in Asia that began in 1997 and theassociated drop in construction activity theresharply reduced the demand for timber in Asia,this decline will be temporary if the region’s econo-mies recover. Because forests in Africa, Asia, andNorth America have been extensively harvested,timber supply from those regions is diminishing;prices are therefore expected to rise over the next20 years. Demand is now being filled increasinglyby producers in South America, where forests havebeen less extensively harvested to date.


A shortage of timber in Asian countries such asJapan, Malaysia, the Philippines and Thailand,which are now net importers of tropical timberproducts, has created a sizable market for morespecies from Amazonia. Hence Asian and othertimber companies that in the past showed littleinterest in selective harvesting are moving intoLatin America. The tropical timbers they harvestare sold locally and into the export markets. An-nual sales to the United States, for instance,amount to about US$500 million and those toEurope about US$1 billion.60 Certified tropicaltimber represents less than 1% of this market butis estimated to be growing at a rate of more than25% a year.61 Ultimately, the domestic markets ofLatin America will also become more important.Brazil shows particular promise in this regard,what with a growing economy and a populationof 160 million people whose purchasing poweris also on the rise.

About 95% of Latin America’s wood industry isnow based on natural (primary and secondary)forest exploitation. Most forestland is under pri-vate, not state, ownership, a pattern different fromthat in other regions.62 However, national lawsand development programs may eventually exertsome influence on forestry practices.63 Brazilianlaw, for example, already places limits on har-vests from natural forests, but these laws are diffi-cult to enforce. The Brazilian government is alsoworking to create and strengthen a system of re-serves, protected areas, and development corri-dors in the Amazon.64

The Buyers. On the demand side, several majorEuropean buyers limit tropical hardwood pur-chases to certified sources. Major corporate woodbuyers and furniture makers in the United King-dom, continental Europe, the United States, Aus-tralia, and Japan have formed buyers’ groups topromote and encourage certified sustainablesources.65 Buyers’ groups, whose membership in-cludes private companies, local and state govern-ments, universities, and others, are committed toincreasing their purchase of certified timber. Mostrequire that the wood be FSC-certified.

In the United Kingdom, the “1995-Plus Group”now has 78 participating retailers and represents25% of the U.K. market for wood and paper prod-

uct sales.66 The group is led by B&Q, a home-supply firm, which has agreed to buy only FSC-certified wood as of 2000. All B&Q suppliers wereexpected to have plans in place to meet this tar-get. The MacArthur Foundation and several pri-vate companies and NGOs have set up a similargroup in North America, called the Certified For-est Products Council. Most large wood-purchas-ing companies have yet to join, but several areconsidering membership, among them construc-tion companies, retail stores, manufacturers, anddistributors and suppliers of sustainably harvestedwood. The FSC also has had support from largeretailers such as IKEA in Scandinavia. Many certi-fied operations develop markets via distributiongroups, specialty importers, and traditional dis-tributors. Several makers of guitars and othermusical instruments are shifting their purchasesof wood to certified sources or away from threat-ened species.67

Types of Businesses

Wood buyers are sending strong signals that theywould buy more certified wood if they could getaccess to a larger reliable supply. Demand there-fore appears to outweigh supply, creating ampleopportunity for the creation of new business. Sev-eral companies in Latin America have already beencertified, and others are investigating the possibil-ity of obtaining certification (see FSC statistics forLatin America in Box 3.4 above). These range fromcommunity-based projects to industrial-size con-cessions, which meet or will soon be able to meetsustainable certification requirements.68 The opera-tions include the harvesting of secondary and someprimary forest, the use of secondary species, andvalue-added processing. Perhaps as many as 100commercial or community-based projects are ei-ther in the early stages of commercial expansion orare serving only local markets. A number of large-scale producers are moving to or considering certi-fication. Several businesses with mixed speciesplantations may also consider certification.

Investment opportunities may include forestservice companies that provide nursery-raisedseedlings and turn-key planting for the reforesta-tion of degraded land and mining sites, value-


added products and manufacturing of semifinishedconstruction products and furnishing/decoratingitems, certified plywood production (there is asyet no source of sustainable plywood or panelingin Latin America), and certification and trainingservices.

Nontimber Products SustainablyHarvested from the Wild

Definition

A variety of products other than trees may be har-vested from the wild in such a way that allowsthe plant or animal species to regenerate and hasminimal impact on intact or wild forests or otherecosystems. Over the 1990s, new markets fornontimber forest products took root for productssuch as resins, essential oils, edible oils, plantgums, fibers, nuts, fruits, dyes, insects, insect prod-ucts, latex, ornamental plants, spices, herbs, andhandicrafts. The demand for herbal supplements(e.g., kava, ginkgo biloba, St. John’s wort, andechinacea) has also shot up, especially in theUnited States, where annual sales of all such prod-ucts totaled $2 billion in 1997.69

Like nontimber products, game hunting, wild-life ranching, and recreational fishing may con-tribute to biodiversity conservation by managingherd size, placing limits on harvests, or generat-ing revenue to maintain or protect reserves and

parks.70 As a result, local people may in some casesbe able to continue subsistence hunting with mini-mal impact. Commercial fishing that adheres tostrict limits on harvests or to certain harvest tech-niques may also help to conserve species as op-posed to unregulated fishing.


Best NTFP practices depend upon the speciesharvested, though in general they are likely to beakin to those developed for sustainable forestry.71

Recreational fishing associations promote catch-and-release techniques, which more and more fish-ing enthusiasts are employing in prime recreationalfishing areas such as Patagonia and the Pantanal.In Asia and in Latin America, several NGOs arepromoting best practices for harvesting food fishand aquarium species from reefs, in place of eco-logically destructive practices such as the use ofdynamite and cyanide.

The Market

NTFPs are part of the larger “natural products”industry. In the United States, sales in this markettopped US$28 billion in 1999.72 Among other mar-ket indicators, world imports of Brazil nuts reachedUS$33.5 million and natural rubber US$5 billionin 1991; world palm oil sales totaled US$5.4 bil-lion in 1992; and existing markets of exotic andtropical fruit products (which have potential forexpansion) posted sales of US$250 million in1990.73 The heart of palm market is among thelargest for NTFPs, with sales of US$300 million inBrazil and a growing export market in the UnitedStates and Europe.74 Another growing sector ofthis market involves the extraction of spices, herbsand chemicals for use in herbal products, medi-cines, and cosmetics. One of the main risks forthis sector lies in developing a reliable supply tosatisfy market demand, given the remote locationof some projects and their community-based ap-proach to harvesting products.

Statistics on catch-and-release recreational fish-ing, game ranching, and the sustainable harvest-ing of coral reefs for the aquarium trade are not

Box 3.5 Example of a Sustainable ForestryCompany in Paraguay

A two-year-old startup company in Paraguay purchased low-priced forestlands (20,000 hectares to start) to harvest, re-plant, and process mixed species of hardwoods (mostly insecondary forest). After raising more than US$10 million incapital from U.S. forestry and institutional investors, thecompany established a milling operation, and now plansto expand by working with other landowners and purchas-ing additional land. The company is also harvesting andexporting Yerba Mate (a tea).


yet available in Latin America. Proxy statistics, suchas recreational fishing and exports of aquariumspecies, were not gathered for this report.

Types of Businesses

The majority of NTFP projects are managed byNGOs, cooperatives, and a few expanding smallbusinesses.75 The number of entrepreneurs enter-ing this sector is still limited because the infra-structure is underdeveloped and thus the areas inwhich NTFPs are extracted remain inaccessible.Although this sector is small and fragmented, op-portunities exist for entrepreneurs to start process-ing facilities near forests, and to provide equipmentfor processing NTFPs and for marketing andbrokering companies. Some of the NTFP opera-tions likely to be of interest to investors are thelarge landholdings engaged in mixed-use projects,including selective timber harvesting, mixed hard-wood and fruit/nut tree plantations, NTFPs, andecotourism.

Ecotourism and Nature Based Tourism

Definition

Defined as a type of nature tourism, ecotourismdirectly links travel (including leisure, adventure,

and educational activities) to undisturbed and pris-tine areas and to the conservation of their naturalresources. Ecotourism lodges range from simplestructures built in the local style to high-end luxuryaccommodations. Ecotourists often spend theirtime viewing, exploring, and learning about thesurrounding ecosystem by hiking in rainforests,diving on coral reefs, climbing in wilderness ar-eas, or trekking or canoeing in mountain or sub-polar environments. The number of visitors is oftensmall and restricted so as not to exceed the carry-ing capacity of the area and thereby damage theecosystem.

Many types of nature tourism and so-calledecotourism do not qualify as sustainable eco-tourism as defined in this discussion. Ecotourismbusinesses actively contribute to conservationrather than just seek to minimize environmentalimpacts. Ecotourism projects are expected to pro-vide financial assistance in preserving or main-taining the land resource on which the businessis based, whether it is a neighboring forest or acoral reef. Land preservation must be part of theproject, and it must assist or wholly manage aprotected area or support educational and researchprograms. These ventures are expected to followecologically sensitive architectural and land usedesigns, help sustain the well-being of localpeople, and keep negative impacts on environ-mental resources to a minimum.76


Expecting an enterprise to follow all of these guide-lines is a tall order. One of the main problems isthat ecotourism activities, however defined, cangreatly alter both the biological and human envi-ronment if too many tourists invade areas thatwere little visited before.77 If ecotourism is to besustainable, it must follow best practices in thedesign and management of its activities. The lackof consistent and accepted standards is a majorrisk for the sector. The name “ecotour” is no guar-antee that ecology will be a prime concern.78 Thecredibility of the sector may suffer if travelers havedifficulty separating the environmentally sustain-able operators from low-quality imitators.

Ecotourism societies, NGOs, industry associa-tions, and governments are developing guidelines

Box 3.6. Examples of Palm Heart Processingin Brazil

Located near the mouth of the Amazon, one establishedproducer with a large landholding of native forest in Brazilselectively harvests fruit from the acai species of palmito,Euterpe oleracea, which regenerates and produces subse-quent crops. Products are sold under the “King of Palms”brand name. The company also processes and distributesacai juice, which, like milk in northern countries, is a stapleof the local diet, especially for children. Another proposedventure seeks to purchase palm hearts from the local popu-lation for processing on a river barge and at an industrialfactory. The canned palm hearts would be sold to the UnitedStates and Europe.


and certification standards to help remedy this situ-ation. The Ecotourism Society in the United States,the World Travel and Tourism Council (WTTC) inthe United Kingdom, the World Tourism Organi-zation, and the IUCN have already published bestpractices and industry guidelines. The WTTC alsohas a “green globe” program geared toward tour-ism, but this is an environmental compliance/bestpractices approach designed for tourism facilitiesor operations based on ISO 14000/1 principles,not an ecotourism program. Thus, while best prac-tices have been documented, there are as yet nowidely accepted guidelines for ecotourism. Aus-tralia and Costa Rica are among the few coun-tries to have an accreditation system for ratingtour operators and resorts on the basis of their“green-ness.”79 Ongoing research on the impactsof ecotourism operations will help to refine best-practice guidelines.80

The Market

Ecotourism is a subsector of one of the world’slargest industries—tourism. World travel and tour-ism generate an estimated 11% of world GDP, orUS$3.4 trillion a year, and account for more than11% of the world’s capital investment.81 Statisticson the ecotourism segment are sparse. Estimateson the number of ecotourists vary widely, depend-ing on how they are defined and where they travel.Nevertheless, nature tourism (including eco-tourism) is recognized as a fast-growing marketthat has benefited from an existing tourism infra-structure, travel agents, and other booking ser-vices. Nature tourism is expected to continue itsrapid growth, fueled by an increasing demand foroutdoor and adventurous travel in isolated regionsas well as by concerns for the environment.

To promote ecotourism, as opposed to the moregeneral nature tourism, an enterprise would haveto emphasize its positive contribution to conser-vation and overcome its inherent financial diffi-culties. So far, most ecotourism businesses havefew links to major tour companies. Small facilitiesare difficult to finance and operate profitably. Thus,while “small is beautiful” in terms of minimizingthe impact of the tourism activity on the environ-ment, small projects reach few tourists and mayhave little impact on the industry as a whole.

Operators hoping to expand the influence andthe number of ecotourism facilities might trybioregional planning, a one-developer/operatorapproach with multiple sites, an exclusive rightsapproach, or a small luxury operation.

Bioregional Planning. Biodiversity land useplanning and cooperative projects of the govern-ment, local community, and private sector mightcreate opportunities for ecotourism. For example,much of the Yucatan peninsula and the Mayanruins of Mexico have yet to be developed for tour-ism. Local universities and governments and NGOsare working on the “rules of the game,” so as toavoid the overdevelopment of places such asCancun and to encourage small facilities to enterthe sector, reduce environmental impacts, andmaintain large areas of natural habitat.

One Developer/Operator with Multiple Sites. Afew tour operators, hotel developers, and privateinvestors are considering multisite operations inLatin America and the Caribbean. The proposalshave several features in common: the hotels aresmall (20–30 rooms for the high-end market and100 rooms for the midpriced market); all the fa-cilities are run by one operator (for economies ofscale in marketing, brand name, supplies, techni-cal knowledge); they all follow an ecotourismdesign (in terms of facilities, activities, and local-community involvement); they operate as a jointventure, investment coming from local partners,with the active involvement of an internationalNGO and local NGOs; and a portion of the profitswill be earmarked for the protection of local naturalresources or land preservation.

Exclusive Rights. Concessions and lodging inone region or around one national park couldoperate under a system of exclusive rights. Gov-ernments, private sector developers, and NGOsare currently considering a range of approachesto the management of national parks: one possi-bility would be to privatize park management orconcessions/lodging and limit development rightsto one or a few developers (in exchange for rev-enue sharing or conservation benefits).

Small Luxury Operations. With the right ingre-dients, small luxury operations may be profitable.

Tab

le 3

.1.

Sum

mar

y o

f B

iod

iver

sity

-Bas

ed S

ecto

rs a

nd

Th

eir

Lin

ks t

o B

iod

iver

sity

Sect

or

Def

init

ion

Lin

k to

Bio

div

ersi

tyM

arke

t Su

mm

ary

Sust

aina

ble

agric

ultu

reC

ombi

natio

n of

cer

tifie

d or

gani

c ag

ricul

-Su

stai

nabl

e ag

ricul

ture

eco

syst

ems

are

Man

y pr

oduc

er c

o-op

s in

tegr

atin

g pr

oces

sing

ture

, cr

op d

iver

sific

atio

n, in

terc

ropp

ing,

mor

e di

vers

e th

an c

urre

nt p

ract

ice;

and

mar

ketin

g; f

ast-

grow

ing

med

ium

-siz

edus

e of

loca

l spe

cies

and

oth

er s

usta

inab

leim

prov

es la

nd p

rodu

ctiv

ity b

y re

duci

ngpr

oduc

ers;

som

e la

rger

far

ms

conv

ertin

g;fo

rms

of “

low

-inpu

t” p

rodu

ctio

n; a

gro-

pres

sure

to

clea

r la

nd; l

ess

dam

age

incr

easi

ngly

eff

ectiv

e m

arke

ting;

sca

ling

up f

orfo

rest

ry; p

artia

l res

tora

tion

of d

egra

ded

to s

urro

undi

ng e

cosy

stem

and

hum

ans;

fast

-gro

win

g m

arke

ts in

the

Eur

opea

n U

nion

,ar

eas.

can

exte

nd n

atur

al h

abita

t fo

r so

me

spec

ies.

Uni

ted

Stat

es, J

apan

, and

Lat

in A

mer

ica.

Sust

aina

ble

fore

stry

Cer

tifie

d fo

rest

pro

duct

s fr

om p

lant

atio

nsLa

rge

proj

ects

off

er d

irect

bio

dive

rsity

pro

-Se

vera

l com

mun

ity f

ores

try

oper

atio

ns;

on d

egra

ded

land

s; r

efor

esta

tion

with

tect

ion;

incr

ease

s va

lue

of in

tact

for

est;

emer

ging

com

mer

cial

sca

le o

pera

tions

with

indi

geno

us s

peci

es;

low

-impa

ct lo

ggin

g;ce

rtifi

ed p

roje

cts

set

“bes

t pr

actic

e”;

deal

s of

$5–

50 m

illio

n; g

ood

infr

astr

uctu

reva

lue-

adde

d pr

oces

sing

.m

ixed

spe

cies

pla

ntat

ions

can

act

as

and

tech

nica

l exp

ertis

e; e

xist

ing

cert

ifica

tion

gene

tic r

eser

ves.

stan

dard

s.

Ecot

ouris

mN

atur

e to

uris

m t

rave

l to

prot

ecte

d an

dPo

tent

ial f

or lo

w im

pact

, in

situ

dev

elop

-Re

lativ

ely

new

mar

ket;

Cos

ta R

ica

and

Ecua

dor

undi

stur

bed

natu

ral a

reas

; ca

n in

clud

em

ent

in p

rote

cted

are

as a

nd b

uffe

r zo

nes;

mos

t de

velo

ped

mar

kets

; do

cum

enta

tion

onle

isur

e, a

dven

ture

, an

d/or

edu

catio

nal

hard

cur

renc

y in

vest

men

t in

con

serv

atio

nop

erat

ors’

impa

ct o

n ec

osys

tem

s an

d co

mm

u-ac

tiviti

es.

Envi

ronm

enta

lly s

ensi

tive

desi

gnac

tiviti

es; i

ncom

e fo

r lo

cal p

opul

atio

n;ni

ties

limite

d; b

est

man

agem

ent

prac

tices

exi

stan

d op

erat

ion.

Fi

nanc

ial o

r ot

her

cont

ri-m

ay r

educ

e pr

essu

re o

n un

dist

urbe

d ar

eas.

but

cert

ifica

tion

nasc

ent.

butio

n to

pro

tect

adj

acen

t na

tura

l hab

itat.

NTF

PsA

ll go

ods

deriv

ed f

rom

for

este

d ar

eas

that

Prov

ides

inco

me

to lo

cal p

opul

atio

n fr

omH

igh

pote

ntia

l for

bio

dive

rsity

pro

tect

ion;

are

not

of w

ood

orig

in (e

.g.,

frui

t, n

uts,

low

-impa

ct a

ctiv

ities

; har

vest

ing

met

hods

loca

l pop

ulat

ion

bene

fits;

div

erse

dea

l flo

w;

dyes

, pla

nt g

ums,

ess

entia

l oils

, spi

ces)

;no

ndes

truc

tive;

giv

es f

inan

cial

rea

son

tosm

alle

r-de

al s

ize

and

expo

rt m

arke

ts; b

oth

culti

vatio

n/ha

rves

t of

nat

ural

sta

nds/

rese

rves

,m

aint

ain

natu

ral h

abita

t.pr

ivat

e se

ctor

and

NG

O in

itiat

ives

; lac

k of

agro

fore

stry

plo

ts;

valu

e-ad

ded

proc

essi

ng.

rese

arch

on

man

y pr

oduc

ts.

28

Tab

le 3

.1.

(co

nti

nu

ed)

Sect

or

Mar

ket

Size

Mai

n O

pp

ort

un

itie

sEx

isti

ng

Exa

mp

les

Sust

aina

ble

agric

ultu

reEs

tabl

ishe

d an

d gr

owin

g m

arke

t; a

nnua

lO

rgan

izin

g di

vers

e so

urce

s of

sup

ply

toO

rgan

ic s

oybe

ans,

sug

ar, c

offe

e, c

ashe

ws,

U.S

. an

d Eu

rope

an o

rgan

ic a

gric

ultu

re s

ales

mee

t th

e de

man

d of

mai

nstr

eam

sup

er-

vege

tabl

es,

beef

, A

maz

onia

n fis

h.ab

out

US$

10 b

illio

n, w

ith s

ales

gro

win

g at

mar

kets

, va

lue-

adde

d pr

oces

sing

,20

%/y

ear

for

the

last

sev

en y

ears

.or

gani

c in

puts

, an

d aq

uacu

lture

.

Sust

aina

ble

fore

stry

Still

a s

mal

l per

cent

age

of t

he m

arke

t;Su

stai

nabl

e fo

rest

pro

duct

s co

mpa

nies

,Se

lect

ive

harv

est

of p

rimar

y an

d se

cond

ary

emer

ging

exp

ort-

driv

en d

eman

d fo

rva

lue-

adde

d w

ood

proc

essi

ng e

quip

men

t,sp

ecie

s by

co-

ops

and

com

pani

es, r

efor

esta

-“c

ertif

ied”

sus

tain

ably

pro

duce

d pr

oduc

tsce

rtifi

catio

n an

d tr

aini

ng.

tion,

val

ue-a

dded

pro

cess

ing.

grow

ing

rapi

dly;

ver

y di

vers

e de

man

d se

g-m

ents

; si

gnifi

cant

cou

ntry

and

reg

iona

ldi

ffer

ence

s.

Ecot

ouris

mW

TO e

stim

ates

wor

ld n

atur

e to

uris

m m

arke

tLo

dges

and

hot

els

in p

rote

cted

are

as a

ndLo

dges

in C

osta

Ric

a, B

eliz

e, B

razi

l, Bo

livia

,is

gre

ater

tha

n $2

00 b

illio

n.bu

ffer

zon

es;

trai

ning

fac

ilitie

s fo

r op

erat

ors

Peru

, A

rgen

tina.

and

staf

f; f

acili

ties

that

com

bine

tra

vel,

educ

atio

n, a

nd s

cien

tific

res

earc

h; e

nerg

yco

nser

vatio

n an

d re

new

able

ene

rgy.

NTF

PsM

arke

t da

ta f

or N

TFPs

not

ava

ilabl

e; lo

cal,

Mob

ile a

nd f

ixed

pro

cess

ing

faci

litie

s fo

rN

atur

al r

ubbe

r pr

oduc

ts, p

alm

hea

rt, a

nd B

razi

lre

gion

al, a

nd in

tern

atio

nal m

arke

ts f

or m

ost

valu

e-ad

ded

frui

ts, n

uts,

and

oils

; agr

o-nu

t pr

oces

sing

.pr

oduc

ts; l

arge

st t

rade

: fru

its, n

uts,

ess

entia

lfo

rest

ry p

lots

with

mix

ed s

peci

es e

ndem

icoi

ls, r

esin

s; p

roxy

fig

ures

: wor

ld t

ropi

cal f

ruit

to a

rea.

juic

e m

arke

t ab

out

$250

mill

ion;

Bab

assu

mar

ket

$100

mill

ion.

29


Their drawing card is exclusivity, very high “wowfactor” for the site, good security, ease of access,attention to detail, gourmet food, and large bath-rooms. The high-end safari camps and lodges inAfrica are one example that might be attemptedin other parts of the world.

Ecotourism has considerable potential in LatinAmerica, particularly in Argentina, Ecuador, CostaRica, Belize, and Brazil.82 Costa Rica has alreadybuilt a strong tourism industry, largely through itsemphasis on nature-oriented tourism. This nationof only 3 million people hosted nearly 800,000visitors in 1994 (up from 260,000 in 1985). As aresult, tourism is now its most important foreignexchange earner (US$623 million in 1994, or 28%of the total value of the country’s exports).83 OtherLatin American governments are adopting poli-cies to promote ecotourism, while ecotourismsocieties, NGOs, industry associations, and gov-ernments are developing guidelines and certifica-tion standards to ensure the uniform developmentof the industry.84

Types of Businesses

Businesses include lodges or hotels in protectedareas; facilities that combine travel, education, andscientific research; and support services such astraining, alternative energy sources, (organic) foodsupplies, and transport. Most operations that willqualify as “ecotourism” under the definitions dis-cussed earlier are small lodges or hotels with lessthan 40 rooms. However, several ventures maycombine tourism with other commercial activitiesor package several ecotourism facilities into onecompany.

Latin America provides several examples ofecotourism businesses at various stages of devel-opment. Some hotel developments in Brazil—inthe coastal Atlantic rainforest area, the Amazon,and the Pantanal—are tied to preserving adjacentland and coastal resources considered to be eco-logically sensitive. These hotels also serve as abase for regional tourism activities such as forestvisits and the viewing of rare orchids, plants, andbirds. Other ecotourist destinations include Peru,Argentina (Patagonia), Ecuador, Belize, Paraguay,and, as already mentioned, Costa Rica.

Notes

1. See D. Koechlin and K. Muller, eds., Green Busi-

ness Opportunities (London: Pitman, 1992), 56, 61–77;

issues of Tomorrow Global Environment Business, To-

morrow Publishing AB, Sweden (e.g., forestry issue,

April/June 1995); National Green Pages, the Yellow Pages

for People and the Planet (Co-op America, 1994); A.

Manning, “96 a Banner Year for Boomer Trends,” USA

Today, December 14, 1995; “Editorial: A New Matu-

rity,” in Business, September/October, 1995, 4

2. On the benefits of ecoefficiency, see S. Schmidheiny

et al., Financing Change (Cambridge, Mass.: MIT Press,

1996), 61–76. Enterprises of all sizes are recognizing

“ecoefficiency” as a criterion for higher profit margins

and long-term success. See also S. Schmidheiny et al.,

Changing Course (Cambridge, Mass.: MIT Press, 1992);

B. Smart, Beyond Compliance: A New Industry View of

the Environment (Washington, D.C.: World Resources

Institute, 1992); Vaughn, ed., Greening Financial Mar-

kets, Report of the UNEP Round-Table Meeting on Com-

mercial Banks and the Environment, September 26–27,

1994, Geneva, esp. 59–94 on how banks manage envi-

ronmental risks; N. Walley and B. Whitehead, “It’s Not

Easy Being Green,” Harvard Business Review (May–

June, 1994), 46–52; R. Abramson, “The Profits of Clean

Living,” review of Moore and Miller’s book Green Gold,

Washington Post Book World, December 18, 1994, 9,

Box 3.7. Rainforest Aerial Tram

One of Costa Rica’s newer ventures is a ski lift with gondo-las, now in operation for three years, that takes visitorsinto the canopy of a rainforest located near San Jose. Theaerial tram runs a distance of 1 to 2 kilometers through thecanopy of the trees. Trained local guides take visitors on ahalf-hour instructional hike through the forest prior to thealmost two-hour gondola ride. An outdoor covered res-taurant serves lunch and refreshments. The poles and equip-ment were installed partly by helicopter to limit the damageto existing forest. The company purchased the land aroundthe aerial tram and plans to maintain the area in its naturalstate. The World Bank’s Multilateral Investment GuaranteeAuthority (MIGA) provided risk insurance for the venture.The company is considering other sites in the region.


3. M. J. Dourojeanni, “Public Sector Roles and Eco-

nomic Policies Affecting Biodiversity Conservation in

Latin America and the Caribbean,” in Investing in

Biodiversity Conservation, Inter-American Development

Bank, Environment Division Report ENV-111 (Wash-

ington, D.C., 1997).

4. Dourojeanni, “Public Sector Roles.”

5. See, for example, New Partnerships Working

Group, U.S. Agency for International Development and

World Resources Institute, New Partnerships in the

Americas, the Spirit of Rio (Washington, D.C.: Decem-

ber 1994), 66–67, 71–83.

6. A. Sanchez de Lozada, National Director for the

Conservation of Biodiversity in Bolivia, “Facing the

Challenges of Biodiversity Conservation in Bolivia,”

Ministry of Sustainable Development and Environment,

La Paz, April 1997; B. Dias, “Biodiversity Issues and

Opportunities in Brazil,” paper presented at Commer-

cial Issues of Biodiversity: The Biodiversity Conference

for Business, conference sponsored by Scientific Ameri-

can, San Jose, Costa Rica, April 7–10, 1997. See also

Issues and Options in the Design of GEF Supported Trust

Funds for Biodiversity Conservation, World Bank Envi-

ronment Department Paper 011 (Washington, D.C., April

1995), which contains examples of trust funds set up in

Latin American countries; U. G. Cordani, J. Marcovitch,

and E. Salati, Rio 92 Cinco Anos Depois: Avaliacão das

acoes brasileiras em direcão ao desenvolvimento

sustentavel cinco anos após a Rio-92 (São Paulo:

Alphagraphics, 1997); Making Development Sustainable:

The World Bank Group and the Environment, Fiscal

1994, (Washington, D.C.: World Bank, 1995), 33, 34,

35, 51; Mainstreaming the Environment, Summary: The

World Bank Group and the Environment since the Rio

Earth Summit (Washington, D.C.: World Bank, 1996),

1, 6, 29, 39, 40, 92, 93, 98, 112, 118, 145, 183, 184, 194;

K. R. Miller and S. M. Lanau, National Biodiversity Plan-

ning: Guidelines Based on Early Experiences around

the World (Washington, D.C.: World Resources Insti-

tute, 1995), 114–17, 123–25.

7. K. Lindberg and J. Enriquez, “An Analysis of Eco-

tourism’s Economic Contribution to Conservation and

Development in Belize,” vol. 1, Summary Report, World

Wildlife Fund and Belize Ministry of Environment and

Tourism, 1994; K. Wells, “Belize Offers an Adventure in

Ecotourism,” Wall Street Journal, May 10, 1996.

8. On Costa Rica’s national commitment to sustain-

able development, see C. F. Zamora Murillo, ed., Del

Bosque a la Sociedad—From Forest to Society: Results

of the First International Forum (San Jose, Costa Rica:

Editorial Universidad Estatal a Distancia, Costa Rica,

1994).

9. Protocolo Verde agreement signed by President

Fernando Henrique Cardoso on November 14, 1995.

See M. Suzman, “Cardoso Sets Aside 62m Amazon

Acres,” Financial Times, April 30, 1998.

10. National Research Council (NRC), Alternative

Agriculture (Washington, D.C.: National Academy Press,

1989).

11. For background on low-impact and organic farm-

ing, see NRC, Alternative Agriculture; L. A. Thrupp,

Bittersweet Harvests for Global Supermarkets: Challenges

in Latin America’s Agricultural Export Boom (Wash-

ington, D.C.: World Resources Institute, 1995); Organic

Crop Improvement Association (OCIA), 1995 Interna-

tional Certification Standards (Bellefontaine, Ohio:

OCIA International, 1995).

12. See, for example, OCIA, 1995 International Cer-

tification Standards for the U.S. and Guidelines for the

Quality Standards, Demeter and Organico “Instituto

Biodinâmico”, accredited by IFOAM for Plant Produc-

tion and Processing, May 1996, for Brazil.

13. R. Weiss, “When Is Food ‘Organic’? USA Pro-

poses 1st Rules,” Washington Post, December 16, 1997,

A1, A11.

14. Rainforest Alliance’s Eco-OK banana certification

program in Central America. See, for example, Rainforest

Alliance newsletter, “Earth University Becomes Largest

Banana Grower to Earn Eco-OK Seal of Approval,” The

Canopy, Spring 1994, p 1.

15. Migros Annual Report, 1996.

16. R. A. Rice and J. R. Ward, Coffee Conservation,

and Commerce in the Western Hemisphere (Washing-

ton, D.C.: Smithsonian Migratory Bird Council and Natu-

ral Resources Defense Council, June 1996); D. Griswold

and J. Ward, “Mexico’s Mistaken Coffee Policy,” opin-

ion article in Journal of Commerce, November 6, 1996,

7A; “Coffee: Green, As in Greenbacks,” Economist (San

Jose, Costa Rica correspondent), February 1, 1997, 42.

17. Thomas Harding, past president of IFOAM, per-

sonal communication, 1997.

18. Board members of Widar, a private nonprofit

group in São Paulo, Brazil, and Alexandre Harkaly of

Instituto Biodinâmico, a Brazilian organic agriculture

research and certification organization, personal com-

munications, 1998.

19. Figures from Carol Haest, organic agriculture

consultant in Belgium. Information on the European


market is based on the author’s interviews with offi-

cials from Migros and Monoprix and reports on the

European market in two trade newsletters: Natural

Business and Organic Trends.

20. Information from Max Haavelar.

21. For example, Bio Fair, an annual organic agricul-

ture conference in Costa Rica, was cosponsored by GTZ,

the German government aid agency, in 1996 and 1997.

22. German Marketing Board for Agricultural

Products.

23. D. Holing, “Down on the High-Tech Farm,” To-

morrow, January/February 1998, 19.

24. See June issues of Natural Foods Merchandiser.

25. C. Sugarmann, “In for the Long Haul: Organic

Produce Isn’t Small Potatoes Anymore,” Washington Post

(September 13, 1995), E12.

26. M. Webb, “Fresh Fields Will Be Bought by Rival

Chain,” Washington Post (June 19, 1996), D1, D3;

“Whole Foods Acquires Fresh Fields,” Natural Business,

Issue 2, July 1996, 1; K. Murphy, “Organic Food Makers

Reap Green Yields of Revenue,” New York Times, Oc-

tober 26, 1996, Business Day Section. Also see National

Foods Merchandiser, June 2000, p. 21. Whole Foods

and Wild Oats (the other major US natural foods super-

market) together had US$2.34 billion in sales in 1999.

27. Examples include Whole Foods and Wild Oats

(the two natural foods supermarkets), Vestro Natural

Foods (formed in 1988 to acquire Westbrae Natural

Foods and Little Bear Organic Foods, two processing/

products companies), Odwalla, the Hain Food Group

(processing), Celestial Seasoning (teas), and Ben and

Jerry’s. Earnings/share and return on equity (ROE) vary

widely, depending on the capital intensity of recent

investments or on acquisitions of other companies (ROEs

for the latest fiscal year for public natural foods compa-

nies range from 5 to 30%). Early venture capital inves-

tors generally profited handsomely from the initial public

offerings in the natural foods sector.

28. M. Patsky et al. Healthy Returns: How Healthier

Lifestyles Create Investment Opportunities, Adams, Har-

ness & Hill, Inc. report, September 23, 1996; Adams,

Harness & Hill, First Annual Healthy Loving Confer-

ence—Information, New York, March 19–20, 1997.

29. Condor Ventures, which handled a $5.2 million

private placement for Stoneyfield Farm in New Hamp-

shire (the no. 1 natural and organic yogurt company in

the United States, and no. 4 overall), expects high re-

turns for Stoneyfield’s investors after five years (Adnan

Drrani of Condor Ventures, personal communication,

1998). Stoneyfield had $29 million in sales in 1996 and

in each of the subsequent three years sales increased

25% (Matt Patsky, industry analyst, personal communi-

cation, 1998). Mark Retzloff, the cofounder of the

country’s largest organic dairy farm, Horizon Organic

Dairy, reported $30 million in sales in 1997. The com-

pany also buys milk from 75 organic dairy farms in

Wisconsin. Horizon’s recent private placement raised

cash to buy a 4,000-acre, 3,000-head farm in Idaho; this

increased the company’s assets on its balance sheet

from $2.5 million to $20 million. Horizon’s goal is to

earn 35–40% returns on this long-term investment.

Horizon buys organic sugar from Paraguay and organic

fruits from all over Latin America (Retzloff, personal

communication, 1998). Trefoil Partners (Roy Disney,

major shareholder) bought a controlling interest in

Cascadian Farm, a privately held company in Washing-

ton, which specializes in frozen organic vegetables and

desserts. Cascadian had $20 million in sales in 1996, up

70% from the previous year. Trefoil outbid Kibun

Shokuhin of Tokyo, which reportedly tried to acquire

the Cascadian interest for $9 million or “twice the face

value of the U.S. company’s assets (K. Murphy, “Or-

ganic Food Makers Reap Green Yields of Revenue,”

New York Times, October 26, 1996). After-the-Fall, the

no. 2 organic juice maker, was sold to Smuckers last

year for two times the sales (Drrani at Condor Partners,

personal communication, 1998). Earth’s Best baby food

was sold to Heinz in March 1996 for 72 times the earn-

ings by one estimate and 25 times the earnings by an-

other, when accounting for the fact that Heinz was

already a packer for Earth’s Best’s products (Drrani at

Condor Partners, personal communication, 1998). All

of these companies purchase ingredients from Latin

America.

30. Alexandre Harkaly, Instituto Biodinamico, per-

sonal communication, 1998.

31. The information on underutilized species is based

in part on National Research Council, Cost Effectiveness

Summary of Studies on Underused Plants and Animals

(Washington, D.C.: National Academy Press, 1993); N.

Vietmeyer, “Harmonizing Biodiversity Conservation and

Agricultural Development,” in J. P. Srivastava, N. J. H.

Smith, and D. A. Forno, Biodiversity and Agricultural

Intensification (Washington, D.C.: World Bank, 1996);

L. Luxner, “The South American Leaf,” Aramco World

(November/December 1995), 28–30; B. Rensberger,

“Nurturing a Cornucopia of Potential,” Washington Post,

October 20, 1993, 1; T. Aeppel, “Weird Amazon Fish


Hook Trendy Chefs,” Wall Street Journal, June 18, 1996;

K. Schmeider, “Making Jojoba While the Sun Shines,”

New York Times, February 16, 1986; National Research

Council, Making Aquatic Weeds Useful: Some Perspec-

tives for Developing Countries (Washington, D.C.: Na-

tional Academy Press, 1987); NRC, Crocodiles as a

Resource for the Tropics (Washington, D.C.: National

Academy Press, 1983); NRC, Underexploited Tropical

Plants with Promising Economic Value (Washington,

D.C.: National Academy Press, 1975); G. Escobar,

“Andean Heirlooms,” Washington Post, January 10, 1996,

E1; D. J. Schemo, “Hope for Amazon Rain Forest: New

Fruit,” New York Times, September 24, 1995.

32. FAO food statistics, quoted in “Dwindling Diver-

sity,” Washington Post, February 15, 1997, A30.

33. R. J. Roberts, “Species Can Be Saved through

Farming,” Fish Farming International, July 1993. For a

review of environmental guidelines and practices for

aquaculture, see M. Rubino and C. Wilson, Aquacul-

ture Regulation Guidelines, Study and conferences co-

sponsored by the U.S. Departments of Commerce and

Agriculture and the Maryland Departments of Agricul-

ture and Natural Resources (Bethesda, Md.: Bluewaters,

1993).

34. D. Aiken, “Bivalve Culture in Chile: Cada vez

hay mas y mas ostiones!” World Aquaculture, vol. 24,

no. 4 (December 1993), 7–19. The author visited scal-

lop projects in Ihle Grande, Brazil.

35. N. Castagnolli, “Status of Aquaculture in Brazil,”

World Aquaculture, vol. 26, no. 4 (December 1995),

35–39; “The Pirarucu—Giant Red-Fish of the Amazon,”

The Canopy, a publication of the Rainforest Alliance,

Spring 1994, 3.

36. Several institutions in the state of São Paulo

have formed a joint program to offer short-term courses

for fish farmers. These include the Centro de

Aquicultura da UNESP (Universidade Estadual Paulista),

the Instituto de Pescca (Agriculture State Secretary),

and CEPTA (Centro de Pesquisa e Treinemento em

Aquicultura from the federal Environment Agency).

Such efforts, along with graduate courses organized

by the Department of Aquaculture of the Universidade

de Santa Catarina and the Centro de Aquicultura of

UNESP, are expected to stimulate further development

of the industry. World Aquaculture magazine recently

predicted that Brazil would become a leading pro-

ducer of aquaculture products.

37. M. C. M. Beveridge, L. G. Ross, and L. A. Kelly,

“Aquaculture and Biodiversity,” Ambio, vol. 23, no. 8

(December 1994), 497–502; J. Tobey, J. Clay, and P.

Vergne, The Economic, Environmental, and Social Im-

pacts of Shrimp Farming in Latin America, University

of Rhode Island, Coastal Resources Center, Coastal

Management Report 2202 (University of Rhode Island,

Narragansett, June 1998).

38. Recent aquaculture textbooks and production

manuals contain many best practices to minimize envi-

ronmental impacts. Also, the journal of the World Aquac-

ulture Society devoted an entire issue to environmental

concerns: “Sustainability,” World Aquaculture, vol. 27,

no. 2 (June 1996). The literature also addresses specific

environmental issues. See, for example, G. Iwama, “In-

teractions between Aquaculture and the Environment,”

Critical Reviews in Environmental Control, vol. 21, no.

2 (1991), 177–216; Washington Fish Growers Associa-

tion, “Best Management Practices for Net Pens,” Octo-

ber 1, 1991; C. J. Sinderman, “Strategies for Reducing

Risks from Introduction of Aquatic Organisms: A Ma-

rine Perspective,” Fisheries, vol. 11, no. 2, (1986), 10–

15. A brief review of best management practices and

quality assurance guidelines for marine fish culture may

be found in K. L. Main and C. Rosenfeld, eds., Culture

of High-Value Marine Fishes in Asia and the United

States (Honolulu: Oceanic Institute, 1994).

39. Global Aquaculture Alliance news release, Sep-

tember 30, 1997, from the National Fisheries Institute,

Arlington, Va.

40. Thomas Harding, past president of IFOAM, and

Aldin Hilbrands of Agro Eco Consultancy, Bennekom,

the Netherlands (1998), personal communication.

41. Marine Stewardship Council brochures and an-

nouncements (1997), WWF UK, and Unilever.

42. “Extracts on the Kyoto Declaration and Plan of

Action on the Sustainable Contribution of Fisheries to

Food Security,” Infofish International, vol. 1 (1996),

13–15.

43. FAO statistics, quoted in “Dwindling Diversity.”

44. This is confirmed by a review prepared for the

FAO by the 1995 Kyoto Conference on the Sustainable

Contribution of Fisheries to Food Security, which con-

cluded that even under the most optimistic circum-

stances, fish supply may not meet demand. The

participants’ findings indicate that the world demand

for food fish is likely to increase from 75–80 million

tons in 1994 to 110–20 million tons in 2010. Supply is

expected to vary from 74 to 114 million metric tons

under worst- and best-case scenarios.

45. FAO Statistics, quoted in “Dwindling Diversity.”


46. E. O. Wilson, Biodiversity,

47. “Brazil: Trees and the Law,” Economist, Febru-

ary 7, 1998, 36; J. G. Laarman, Government Policies

Affecting Forests in Latin America, Inter-American De-

velopment Bank, Environment Division, Report ENV-

108 (Washington, D.C., March 1997); Dourojeanni,

“Public Sector Roles.”

48. D. Bryant, D. Nielsen, and B. Tangley, The Last

Frontier Forests (Washington, D.C.: World Resources

Institute, 1997); N. Johnson and B. Cabarle, Surviving

the Cut: Natural Forest Management in the Humid Trop-

ics (Washington, D.C.: World Resources Institute, Feb-

ruary, 1993); R. Crossley, “A Review of Global Forest

Management Certification Initiatives: Political and Insti-

tutional Aspects,” paper prepared for the conference

on Economic, Social and Political Issues in Certification

of Forest Management, Malaysia, May 12–16, 1996.

49. M. B. Jenkins and E. T. Smith, The Business of

Sustainable Forestry (Washington, D.C.: Island Press,

1999); J. Polak et al., Sustaining Profits and Forestry:

The Business of Sustainable Forestry (Chicago: John D.

and Catherine T. MacArthur Foundation, 1997); “Light

at the End of the Forest: The Forestry Industry’s Bumpy

Road to Greenery” in Tomorrow, Global Environmen-

tal Business, no. 2, vol. 5 (April–June, 1995).

50. Polak, et al., Sustaining Profits and Forestry. See

also Forest Stewardship Council brochures and Web

sites.

51. Polak et al., Sustaining Profits and Forestry.

52. Aracruz and Veracruz Florestal, two of Brazil’s larg-

est eucalyptus pulp producers, follow these practices.

53. Tomorrow (January–February 1998), p. 14.


55. World Bank/WWF Alliance for Forest Conserva-

tion and Sustainable Use, Memorandum of Understand-

ing, April 28, 1998.


57. C. Brown-Humes, “Survival Strategy: Nordic

Countries Are Facing Pressure to Preserve Their For-

ests,” Financial Times, July 5, 1995; B. Simon and C.

Brown-Humes, “Wood Supply’s Stunted Growth” and

“Certificates for Swedish Forests,” Financial Times (Feb-

ruary 28, 1996).

58. Logging trends in tropical forests are reviewed by

Johnson and Cabarle, Surviving the Cut. According to

the ITTO, Brazil’s exports to Asia and other new mar-

kets will probably begin to take off. Export markets are

increasingly accepting of lesser-known species, and for

many companies, the distances to domestic markets

(sometimes up to 1,000–1,500 kilometers) often make

export markets more attractive because higher prices

can generally be obtained in the international trade.

59. See FAO statistics. For a review of the industry

context, see T. Lent et al., “Sustainable Forestry within

an Industry Context,” Report to the John D. and

Catherine T. MacArthur Foundation, January 1997.

60. Lent, “Sustainable Forestry.”

61. P. N. Varangis, R. Crossley, and C. A. Primo Braga,

Is There a Commercial Case for Tropical Timber Certifi-

cation? World Bank Policy Research Working Paper 1479

(Washington, D.C., June 1995), 22, 23.

62. See Kare Keipi, ed., Forest Resource Policy in

Latin America (Washington, D.C.: Johns Hopkins Uni-

versity Press, 1999).

63. J. G. Laarman, Government Policies Affecting

Forests in Latin America, Inter-American Development

Bank, Environment Division, Report ENV-108 (Wash-

ington, D.C., March 1997).

64. See World Bank, “Pilot Program to Conserve the

Brazilian Rain Forest: Report on the Fourth Participants

Meeting, Manaus-AM, October 28–30, 1997 (Washing-

ton, D.C., January 15, 1998).

65. For a review of buyers’ groups, see Crossley,

“A Review of Global Forest Management Certifica-

tion Initiatives.”


67. Gibson Guitars is switching its entire annual pro-

duction (100,000 guitars) to timbers certified as forest

friendly by Rainforest Alliance. See New York Times,

Sunday Magazine, May 26, 1996, sec. 10. Flora and Fauna

International, based in the United Kingdom, has a simi-

lar program for a variety of musical instruments.

68. Some examples are Portico, a producer of wood

doors in Costa Rica; PIQRO, a Mexican producer of

hardwood floors; and Precious Woods, a Swiss com-

pany operating in Costa Rica and Brazil. Others were

reviewed in a series of business case studies prepared

for the MacArthur Foundation and published in Jenkins

and Smith, The Business of Sustainable Forestry. See

also C. Best and M. Jenkins, “Capital Markets and Sus-

tainable Forestry: Opportunities for Investment,” John

D. and Catherine T. MacArthur Foundation report, 1999.

69. A. Petersen, “The Making of an Herbal Super-

star,” Wall Street Journal, 1998.

70. See M. Nuding, The Potential of Wildlife

Management for Development Cooperation (Eschborn,

Germany: Deutsche Gesellschaft für Technische

Zusammenarbeit; GTZ, Eschborn, Germany, 1996).


71. The Body Shop, for example, advertises its pur-

chasing practices.

72. New Hope Natural Media, Inc., Natural Foods

Merchandiser (June 1999), p 1.

73. J. Clay, “Report on Funding and Investment Op-

portunities for Income Generating Activities That Could

Complement Strategies to Halt Environmental Degra-

dation in the Greater Amazon Basin,” Cultural Survival

Enterprises report to the Biodiversity Support Program,

February 18, 1992; B. L. Axtell and R. M. Fairman, “Mi-

nor Oil Crops,” FAO Agricultural Service Bulletin 94

(FAO, Rome, 1992).

74. E. J. Richardson Associates, Inc., “Research and

Extension Projects for Food and Food-Related Products,”

Consultancy 007/BIRDIII, Instituto Interamericano de

Cooperação para Agricultura, Brasilia, Brazil, 1994; also

A. B. Anderson, P. H. May, and M. J. Balick, The Sub-

sidy from Nature: Palm Forests, Peasantry, and the

Development on an Amazon Frontier (New York: Co-

lumbia University Press, 1990).

75. J. A. Dixon and J. A. Lampietti, To See the Forest

for the Trees: A Guide to Non-Timber Forest Benefits,

World Bank Environment Department Paper 013 (Wash-

ington, D.C., July 1995); D. Stiles, “Tribals and Trade: A

Strategy for Cultural and Ecological Survival,” Ambio,

vol. 23, no. 2 (March 1994), 106–11; L. Tangley, The

Tagua Initiative (Washington, D.C.: Conservation In-

ternational, 1993).

76. For definitions of ecotourism, see K. Brandon,

Ecotourism and Conservation: A Review of Key Issues

(Washington, D.C.: World Bank, April 1996); H. Ceballos-

Lascurain, Tourism, Ecotourism and Protected Areas

(Gland, Switzerland: IUCN, 1996); S. Blangy and M. E.

Wood, “Developing and Implementing Ecotourism

Guidelines for Wildlands and Neighboring Communi-

ties,” in K. Lindberg and D. E. Hawkins, eds., Ecotourism:

A Guide for Planners and Managers (North Bennington,

Vt.: Ecotourism Society, 1993), 32–34.

77. See M. P. Wells, “Economic Perspectives on Na-

ture Tourism, Conservation and Development,” World

Bank Environmental Economics Series draft paper, Au-

gust 1997; G. Wall, “Is Ecotourism Sustainable?” Envi-

ronmental Management, vol. 21, no. 4 (1997), 483–91;

J. P. Sterba, “People and Pollution Threaten World’s Last

Best Diving Sites,” Wall Street Journal, May 10, 1996.

Also see continuing Internet interchanges on the im-

pacts of tourism on the Galapagos Islands.

78. “Ecotourism: A Good Trip?” Economist, August

30, 1997, 48–49.

79. “Ecotourism: A Good Trip?”

80. See Wells, “Economic Perspectives on Nature

Tourism.” For a review of research projects, see K.

Lindberg and J. Enriquez, “An Analysis of Ecotourism’s

Economic Contribution to Conservation and Develop-

ment in Belize,” vol. 1: Summary Report, World Wild-

life Fund and Belize Ministry of Tourism and

Environment, 1994; “Ecotourism and Environmental

Linkages in Peru: A Framework for Action,” Executive

Summary, Government of Peru and the World Bank,

October 1995.

81. World Travel and Tourism Council statistics from

1995, cited in Brandon, Ecotourism and Conservation.

82. S. Graham, Adventure Travel in Latin America

(Berkeley, Calif.: Wilderness Press); W. Leitch, South

America’s National Parks (Seattle, Wash.: Mountaineers,

1990); J. Wade, “Selling Paradise,” U.S./Latin Trade,

December 1995.

83. Instituto Costarricense de Turismo statistics,

quoted in D. Southgate, Alternatives for Habitat Pro-

tection and Rural Income Generation, Inter-American

Development Bank, Environment Division Report ENV-

107 (Washington, D.C., March 1997).

84. See several articles on Amazonia, Brazil, Ecua-

dor, Costa Rica, and Argentina in Proceedings of the

1993 World Congress on Adventure Travel and

Ecotourism, Manaus, Brazil, 1993.

4Financing Needs

37

The demand for environmental products, the ur-gency of the biodiversity crisis, and the capitalneeds of small and medium-sized biodiversitycompanies provide a compelling rationale for at-tracting capital to biodiversity enterprises. Themarket review in Chapter 3 and the list of busi-nesses in the Appendix show that markets forbiodiversity products are thriving, especially inLatin America. Up to now, biodiversity enterprisesin the region have been financed largely by tradi-tional sources: family savings, cash flow reinvestedfrom existing businesses, trade finance, advancepayments or loans on product, bilateral and de-velopment bank financing, and some traditionalbank financing. Although investors and banks arechanneling small amounts of capital in the region’sbiodiversity sectors, there is insufficient longer-term equity and debt to respond to the capitalneeds and market potential of projects in thesesectors—and to get these businesses to grow fastenough to make a positive contribution tobiodiversity conservation.

This chapter discusses both the financing con-straints and ways to accelerate the implementa-tion of biodiversity businesses, through newsources of long-term financing and by combiningfinancial and biodiversity objectives.

Financing Constraints

Small and medium-sized enterprises (valued at upto $10 million) often have difficulty obtaining long-term finance. Of course, some ventures have notrouble obtaining working capital or trade financ-ing once they are up and running. For example,

many farmers and processors supplying the natu-ral foods market are able to establish financialarrangements with buyers from North America,Europe, and Japan. And conservation projects andmicroenterprises can tap the more than US$1 bil-lion in funds available from foundations, trusts,local governments, and multilateral and bilateralinstitutions. But these funding sources cannot fillthe long-term capital needs of growing commer-cial businesses.

These obstacles are greatest for enterprises seek-ing debt and equity financing to start up, expand,convert to sustainable practices, or move intovalue-added processing. With the exception ofmicroenterprises and a handful of large projects,biodiversity ventures in Latin America typically areseeking a blend of equity and debt in the range ofUS$100,000 to US$5 million. Because most smalland medium-sized enterprises in Latin Americaare family owned, savings and cash flow fromexisting operations are reinvested in the business.Many have access to short-term borrowing fromlocal and international banks and from purchas-ers of product (trade finance). However, they areseldom able to obtain long-term capital. The rea-sons are several:

• Most biodiversity businesses are too smallfor standard institutional financing. There are onlya few large projects in the US$10–50 millionbracket.

• Local bank debt is scarce and interest ratesoften prohibitively high.

• Potential investors tend to view such ven-tures as high-risk, costly transactions, especially


given the small size of the projects, the difficultiessurrounding biodiversity issues, and the lack ofpublic policy aimed at conservation (e.g., landtenure reform, zoning, forest protection).

• Local banks and other investors are unfamil-iar with these sectors. There is still little reliableinformation on returns on investment inbiodiversity sectors: case histories are sparse, andfew if any analysts follow these sectors. The hand-ful of private equity funds operating in the regionare just beginning to make investments—returnsare still three to five years away.

• Bilateral agencies and foundations focus onNGOs and microenterprises. Although governmentand bilateral agencies are making some invest-ments in biodiversity enterprises, the total amountsare still small and the funds can be difficult to tap.Private sector companies usually fall outside theparameters or target programs of foundations.

• Most investment funds in Latin America con-centrate on listed securities or larger unlisted in-frastructure projects.

• The family-owned structure of manybiodiversity companies does not readily lend it-self to joint ventures or outside ownership. Forone thing, accounting standards vary by country.For another, these ventures seldom give thoughtto exit strategies for investors and may not haveaccess to liquid capital markets. Therefore, com-panies may need coaching in structuring exit ve-hicles such as acquisition/sale to other investorsor a larger company, share buyback, profit andrevenue sharing, public offerings, and employeeand management buyouts.

• Many companies seeking financing in thesesectors need assistance in developing their busi-ness. Few know how to prepare business, mar-keting, certification, community relations, andmonitoring plans; how to establish links withmarketing and technology partners; how to ob-tain grant or soft loan funds for pilot projects orsite engineering; or how to obtain necessary gov-ernment approvals. Except in the area of organicagriculture, many entrepreneurs in Latin America(as elsewhere in the world) are unaware of thepotential advantages of employing certifiable sus-tainable practices, the management and produc-tion practices required for certification, and themarket potential of such products.

Attracting New Sources of Long-TermInvestment

Of the many financing constraints, the largest chal-lenge for most biodiversity businesses lies in ob-taining long-term capital. However, the tide maybe turning: now that biodiversity firms are begin-ning to show profits, private investors and largercompanies are paying more attention to the pos-sibilities in those sectors. Also, a decade of mod-est investment in biodiversity businesses has begunto create the infrastructure needed to support in-creased investment in the sector. Such infrastruc-ture consists in part of regional and internationalnetworks of technical expertise in sustainable for-estry and agriculture and NTFPs. A greater flowof microlending and private capital in support of

Box 4.1. Potential Investment Returns inBiodiversity Businesses in Latin America

Few investment analysts follow biodiversity-linked sectors,so little reliable information is available on returns to in-vestment there. However, IFC, consultants to IFC, and thefund managers of Terra Capital Fund have gathered anec-dotal information on potential returns from the review ofbusiness plans and meetings with entrepreneurs. Success-ful and promising businesses studied appear to provide arange of solid returns on investment. Certain sectors, suchas agriculture, NTFPs, and ecotourism, are more likely togenerate early cash flows (in two to four years after start-up operations), while forestry plantations require a longerinvestment period to realize returns. Businesses producingvalue-added products from selective-harvest forestry andorganic agriculture appear to offer the highest, most reli-able returns, with most agriculture projects (organic cof-fee, beef, cashews, fruits, and cotton) showing returns orprojected returns of 10–30%, and forestry indicating re-turns of 10–20%. Some ecotourism deals also look prom-ising, and the projects analyzed have projected internal ratesof return (IRRs) as high as 20–30%. Again, these are pro-jected returns for successful projects: many projects simplyfail or fail to reach expectations. As the sector develops,returns for larger projects may approach those now beingreached in the natural foods industry in North America.

Financing Needs 39

pilot projects and infrastructure will help to lowermarket-entry barriers to new enterprises. Institu-tional investors would find opportunities in thenatural foods industry especially interesting.

Greater amounts of investment could come fromvarious sources of capital, especially in the pri-vate sector: private equity funds targeted atbiodiversity, institutional investors, corporate in-vestors, the International Finance Corporation,multilateral and bilateral organizations, and thedevelopment community in general.

Private Equity Funds Targetedat Biodiversity

Water and wastewater treatment, renewable en-ergy, and natural foods are attracting some atten-tion from venture capitalists. Two suchgroups—Ventana (based in the United States andMexico) and the Global Environment Fund (basedin the United States and not to be confused withthe international Global Environment Facility)—are making water, wastewater treatment, and re-newable energy investments in emerging markets.Trefoil Natural Foods/Shamrock Capital (Califor-nia), Frontenac (Chicago, Illinois), and ShansbyGroup, Venture Strategy Group, and RosewoodCapital (all in San Francisco, California) are in-vesting in U.S. natural foods companies, althoughsome may consider investments in emerging mar-kets.1 By and large, private equity funds may notbe predisposed to consider biodiversity invest-ments or understand the types of technologies andrisks involved.

However, a few existing funds in Latin Americaare making investments that touch on biodiversity.These funds combine private and institutionalmoney with multilateral and bilateral governmentinvestment. Environmental Enterprises AssistanceFund, a nonprofit venture fund with offices inArlington, Virginia, and San Jose, Costa Rica, man-ages Corporación Financiera Ambiental, a US$10million fund for Central America raised from theMultilateral Investment Fund, the Swiss govern-ment, and a few other investors. Over the pastfew years, EEAF has made more than 25 invest-ments in renewable energy, organic agriculture,environmental technologies, and forestry. Triodos,

a Dutch bank and venture fund manager, makesinvestments in small and medium-sized projectsin Europe and in developing countries, largely inorganic agriculture and the wind and solar energyindustries. Triodos receives its funds from a vari-ety of investors, including the Dutch government,Dutch “green” funds,2 and the national lottery.

Institutional Investors

Institutional investors include banks managingpools of money, pension funds, insurance com-panies, university and foundation endowments,and institutional money managers. Several Ger-man, Swiss, and Dutch banks and a few U.S. andU.K. mutual funds now manage “green” funds orfunds that invest in companies that meet environ-mental screening criteria. Most of these funds in-vest in listed securities (large companies listed onstock markets) rather than in unlisted smaller pri-vate companies. However, a few are beginning toconsider and invest in biodiversity projects. Thefollowing investments were made in the mid- tolate 1990s.

Box 4.2. Terra Capital Fund

Terra Capital Fund, a biodiversity investment fund for LatinAmerica, was developed by IFC and is managed by a con-sortium composed of A2R, Inc. of São Paulo, Brazil; Envi-ronmental Enterprises Assistance Fund of Arlington,Virginia; and Sustainable Development Inc. of Rio de Janeiro,Brazil. The fund will invest with others in medium-sizedprojects in Latin America. Target sectors are sustainableagriculture, sustainable forestry, and ecotourism. The fundbegan operations in October 1998 with an initial capitali-zation of US$15 million. Investors include IFC, the CalvertGroup, Jeremy Grantham, Banco Axial (owned by PierreLandolt), the Swiss government, the Multilateral InvestmentFund, and the John D. and Catherine T. MacArthur Foun-dation. Brazilian pension funds are considering an invest-ment in the fund. A US$5 million GEF grant to the fundmanager will cover the incremental biodiversity-related costsover and above the costs of running a typical fund (forextra biodiversity review work, monitoring, advisers).


These are:

• A Swiss company, Precious Woods, raisedan estimated US$40 million largely from Swiss in-stitutional investors for sustainable forestry opera-tions in Costa Rica and Brazil.

• A U.S. company, Sustainable Forest Systems,raised about US$12 million for certified forestryoperations in Paraguay from institutional inves-tors in the United States.3

• Another U.S. consortium, Savia (or Trillium)raised US$100 million for a planned sustainableforestry operation in Chile and Argentina that sub-sequently did not proceed.4

• A2R, Inc. of Brazil and Grantham, Mayo, VanOtterloo & Co., a fund management companybased in Boston, recently formed a forestry fundto invest up to US$100 million in sawmills in Bra-zil that will handle certified wood.5

About seven companies in North America man-age forestry funds for institutional investors withUS$7.5 billion under management. Most invest inNorth American plantations, although some in-clude plantations in New Zealand and Chile. Afew of these and several other groups are devel-oping international funds and seeking investmentsin Latin America.6

Corporate Investors

In the agricultural sector, organic farmers haveturned to marketing and processing companiesfor short-term finance in the form of advance pay-ments on crops, financing of working capital, orsupply purchase agreements. Larger organic pro-cessing plants (valued at US$10 million to US$25million) may be constructed in the next few yearsfor sugar, soybeans/grains, and fruits and fruit pulp.Joint ventures and marketing or technology part-nerships with large companies are a likely sourceof funds for projects in the biodiversity businesssectors. Large forestry companies may be consid-ering sustainable forest operations in Latin Americain the range of US$10 million to US$20 million.

International Finance Corporation

Many potential biodiversity ventures are consid-ered too small or risky for direct IFC cofinancing.Beyond dedicated biodiversity funds such as TerraCapital Fund (see Box 4.2), IFC can support thissector through more conventional private equityfunds or other intermediaries that receive IFC in-vestments. IFC is participating in about 100 pri-vate equity or venture capital funds. Some of theseare in Latin America. All are looking for viablebusinesses, and some will consider start-ups. Forexample, the Chiapas Fund in Mexico invests inagricultural ventures that could include biodiversity-friendly enterprises. IFC also has several regionalproject development facilities or business devel-opment units, some of which work in collabora-tion with special funds targeted at smallerbusinesses in places such as Africa, the MekongDelta, the South Pacific. These funds and facilitieshave invested in or assisted ecotourism and smaller-scale agricultural enterprises.

Box 4.3. Carbon Offsets

Several pilot projects have been established in which powergeneration utility, energy, and automobile companies incountries of the Organization for Economic Cooperationand Development have invested in plantation or forestmanagement projects to “buy” credits for CO2 sequestra-tion to offset their carbon dioxide emissions—or to dem-onstrate the concept of carbon offsets or sequestration.The forest preservation or reforestation activity also has abiodiversity benefit. Specific examples include wind energyand reforestation in Costa Rica, an electric power company’scommitment to double the size of a national park in Bo-livia, and a recent US$15 million grant by Peugeot for re-forestation of native species in Brazil. Although there issome uncertainty about the eligibility of forestry projectsunder the Kyoto Protocol, if the protocol comes into force,it is expected to create enhanced opportunities for carbonsequestration projects.

Sources: “Costa Rica: Your Pollution, Our Forests,” Economist,

June 27, 1998, p. 36; “Double the Park, Cut the Carbon,” Nature

Conservancy, March/April 1997, p. 30; Pro-Natura International’s

Fall 1998 Newsletter, Paris, France. See also M. Totten, Getting It

Right: Emerging Markets for Storing Carbon in Forests (Washing-

ton, D.C.: World Resources Institute, 1999).

Financing Needs 41

Multilateral and Bilateral Organizations

Several investment programs supported by othermultilateral agencies are open to biodiversity in-vestment proposals. Examples from this group arethe Multilateral Investment Fund managed by theInter-American Development Bank; Fundación Bo-livia Exporta, with $35 million in funds from theWorld Bank and the Dutch and Swiss governmentsfor private sector projects in Bolivia; andCorporación Andina de Fomento (CAF, the AndeanDevelopment Corp.). The IDB and the DeutscheGesellschaft für Technische Zusammenarbeit(GTZ) have sponsored workshops in recent yearsto help them identify ways to invest in biodiversityconservation.7

The Development Community

Starting in the early 1980s, the development com-munity recognized the need for economically self-sustaining projects. Many government, bilateral,and multilateral funds now target enterprise cre-ation linked to conservation. Their assistance con-sists of a combination of technical support, grants,and low-interest loans. For example, bilateral agen-cies finance small agriculture and forestry projects.The World Bank, using funds from the GEF, hasworked with governments, NGOs, and founda-

tions to launch national environmental trust fundsthat support revenue-generating projects in andbordering on national parks. U.S. foundations—including Rockefeller Brothers, MacArthur, Ford,and Heinz—make grants to, and project-relatedinvestments in, environmental enterprises.8 Theyoften play a critical role in supporting initiativesduring their early stages and leveraging other grantand private sector funds.

Combining Financial and BiodiversityObjectives

As just indicated, biodiversity enterprises do havea potential pool of long-term capital to tap, inboth the public and private sectors. A key chal-lenge is how to meet both financial andbiodiversity objectives in the investment projects.On one hand, the “pure” financial investor maybe interested in maximizing returns on investment(and perhaps building brand name and obtainingshelf space in supermarkets for products). On theother hand, some public sector investors or foun-dations may seek to maximize biodiversity con-servation benefits. Some private and public sectorinvestors will hope to meet both objectives. Forexample, an investor in a certified organic agri-culture or forestry project will not only look for agood return on investment but also want to seebiodiversity benefits or evidence of best practicein terms of environmental criteria.

For purely financial investors, of course, thefinancial objective will always win out over thebiodiversity objective. However, even investorswho have an interest in biodiversity will at leastwant the project to make a decent return on in-vestment—otherwise the enterprise will go out ofbusiness and the biodiversity benefit of the projectmay be lost.

Ways to Meet Both Objectives

There are ways to maximize both financial andbiodiversity objectives:

• Select projects in which the financial andbiodiversity objectives reinforce each other. Se-lecting ones with products that require environ-

Box 4.4. IFC/GEF Small- and Medium-ScaleEnterprise Program

IFC is managing the IFC/GEF Small- and Medium-Scale En-terprise Program with US$20.8 million from the GEF. Loansof up to US$1 million are advanced to financial intermedi-aries including NGOs and private companies, which in turnlend to or invest in enterprises in this category. Althoughthe loans to the intermediaries are subsidized to accountfor high risks and monitoring and evaluation work, the in-termediary takes the credit risk. Loans related to biodiversityhave been made to a forestry NGO in Costa Rica, an or-ganic berry farm in Poland, a game reserve in Zimbabwe,and an international NGO for forestry and ecotourismprojects in Papua, New Guinea.

Tab

le 4

.1.

Fin

anci

ng

Nee

ds:

Op

po

rtu

nit

ies

and

Ch

alle

ng

es

Ran

ge

of

Fin

anci

al a

nd

Bio

div

ersi

tyFa

cto

rs A

ffec

tin

gSe

cto

rD

eal S

ize

Inve

stm

ent

Cri

teri

aD

evel

op

men

t o

f M

arke

tPr

ob

lem

s/C

hal

len

ges

Sust

aina

ble

$ 15

0 K

to

$25

MEx

iste

nce

of d

omes

tic a

nd in

ter-

Ava

ilabi

lity

of t

rain

ing/

expe

rtis

e;La

ck o

f ris

k ca

pita

l; la

ck o

f gr

ants

to

agric

ultu

rena

tiona

l mar

kets

; acc

ess

tom

arke

ting

infr

astr

uctu

re;

redu

ce p

roje

ct d

evel

opm

ent

risk;

tech

nica

l and

mar

ketin

g ex

per-

avai

labi

lity

of t

arge

ted

capi

tal;

smal

ler

grow

ers

need

bas

ic in

fra-

tise;

pro

vide

s al

tern

ativ

es t

osp

eed

of m

arke

t co

nver

sion

to

stru

ctur

e (p

roce

ssin

g, c

oolin

g, e

tc.),

dest

ruct

ive

prac

tices

; cer

tific

a-or

gani

cs in

Eur

ope

and

the

tech

nica

l ass

ista

nce,

and

bet

ter

tion;

dem

onst

ratio

n va

lue.

Uni

ted

Stat

es.

know

ledg

e of

mar

kets

.

Sust

aina

ble

$ 50

0 K

to

$50

MFo

rest

man

agem

ent

plan

and

Spee

d of

mar

ket

adop

tion

ofFo

rest

man

agem

ent

has

long

pay

back

fore

stry

cert

ifica

tion;

acc

ess

to v

alue

-su

stai

nabl

e fo

rest

ry p

rodu

cts;

perio

ds; m

any

oper

atio

ns la

ck v

alue

-ad

ded

proc

essi

ng;

sust

aina

ble

fore

st m

anag

emen

t pl

ans

adop

ted

addi

ng c

apac

ity; m

any

proj

ects

lack

fore

stry

exp

erts

on

staf

f; m

arke

t-in

Lat

in A

mer

ica;

ava

ilabi

lity

ofm

arke

ting

skill

s an

d ad

equa

tein

g pl

an.

and

acce

ss t

o ce

rtifi

catio

nbu

sine

ss p

lann

ing.

serv

ices

; ava

ilabi

lity

of f

unds

for

sust

aina

ble

fore

st m

anag

emen

ttr

aini

ng.

Ecot

ouris

m$

500

K t

o $2

5 M

Adh

eren

ce t

o be

st s

tand

ards

Dev

elop

men

t of

indu

stry

sta

ndar

ds/

Spar

se in

dust

ry s

tand

ards

/gui

delin

es;

(bui

ldin

g de

sign

, re

new

able

ene

rgy,

guid

elin

es;

grow

th o

f na

ture

tou

rism

;so

me

oper

ator

s la

ck k

now

ledg

e/lo

cal m

ater

ials

, wat

er e

ffic

ienc

y,he

alth

of

glob

al e

cono

mie

s; d

evel

op-

trai

ning

; no

cer

tific

atio

n of

ope

ra-

was

te t

reat

men

t); c

arry

ing

capa

city

men

t an

d ac

cess

to

sour

ces

oftio

ns a

vaila

ble;

bio

dive

rsity

impa

ctst

udy

mon

itorin

g pl

an;

rein

vest

-fin

ance

.no

t m

onito

red;

car

ryin

g ca

paci

ty o

fm

ent

in b

iodi

vers

ity p

rote

ctio

n;si

tes

not

know

n; in

dust

ry v

ulne

rabl

elo

cal p

opul

atio

n be

nefit

s.to

rec

essi

on/o

verc

row

ding

; in

suff

icie

ntfu

ndin

g so

urce

s.

Non

timbe

r$

100

K t

o $5

MA

cces

s to

mar

ket

infr

astr

uctu

re;

Dev

elop

men

t of

loca

l and

reg

iona

lVo

latil

e m

arke

ts a

nd p

rice

fluct

uatio

ns;

fore

stla

nd u

se p

lann

ing,

mon

itorin

g of

mar

kets

; pric

e st

abili

ty; i

mpr

ovem

ent

unco

ntro

lled

extr

actio

n, la

ck o

f re

-pr

oduc

tsbi

odiv

ersi

ty im

pact

; val

ue a

dded

of p

roce

ss a

nd t

echn

olog

ies

and

tran

s-se

arch

, ru

dim

enta

ry p

roce

ssin

g;cl

ose

to s

ourc

e; p

rodu

ct d

iver

sifi-

port

atio

n; in

fras

truc

ture

; st

reng

then

ing

unde

rdev

elop

ed li

nks

to m

arke

ts;

catio

n; lo

cal p

opul

atio

n be

nefit

s;lin

kage

s to

inte

rnat

iona

l mar

kets

; be

t-po

or t

rans

port

; lo

cal m

anag

emen

tte

chni

cal e

valu

atio

n of

sus

tain

abili

ty.

ter

acce

ss t

o re

sear

ch a

nd in

form

atio

n.of

ten

lack

s bu

sine

ss e

xper

ienc

e.

42

mental certification for market acceptance is onestep in this direction. Businesses that receive en-vironmental certification are required to followbest practices that include biodiversity consider-ations. Note that some environmental certificationsdo not necessarily imply biodiversity-friendly prac-tices (recall the example of the forest cut for or-ganic coffee).

• Stipulate that a certain biodiversity objec-tive must be met as a prerequisite for access to asite (e.g., for ecotourism or low-impact certifiedforestry).

• Seek partnerships between the private sec-tor, NGOs, and the government. Business ven-tures backed in this way are more likely toemphasize both financial and biodiversity objec-tives. For example, a private food processing/marketing company, private landowners, andeither NGOs or government agencies that ownlarge amounts of rangeland in the United States,Brazil, or Argentina could join forces to raise andmarket “natural” or certified organic beef underbest practices that sustain the biodiversity func-tions of the rangeland. Another example mightbe an ecotourism venture in the Yucatan regionof Mexico designed by hoteliers in cooperationwith local universities, governments, communi-ties, and NGOs.

• Obtain grants, low-interest loans, loan guar-antees from public sector agencies and founda-tions to cover the extra costs and risks of achievingthe biodiversity objective (the GEF incrementalcost/risk approach, further described in the nextsection).

• For investors with specific social or strategicobjectives, consider accepting a less-than-marketrate of return on investment to achieve biodiversitygoals.

Use of Public and Concessional Funds

Adding small amounts of public money to a pri-vate sector project or transaction is one way toleverage private sector capital for biodiversityobjectives. Such projects might merit concessionalfunds on various grounds: the costs and risks ofdevelopment may be high, the sectors may be intheir infancy, the entrepreneur may be unfamiliar

with the financing sources in the relevant sectors,research may be costly and extensive due dili-gence required to meet biodiversity objectives.These arguments are similar to the ones used toachieve other public policy objectives (e.g., topromote entrepreneurs in the countries of theformer Soviet Union, to create jobs in disadvan-taged areas, or to assist regions emerging fromcivil strife).

When considering the use of concessional fundsin private sector enterprises, it is essential to ap-ply those funds in a way that supports thebiodiversity objective but minimizes—or prefer-ably avoids—market distortions. In using GEFfunds to promote biodiversity businesses, for in-stance, IFC seeks to target the GEF funds at par-ticular barriers or incremental costs, to usenongrant financing where possible (e.g., low-interest loans or guarantees), to maximize the le-verage of the GEF (and IFC) resources, to focuson commercial or near-commercial projects (onesthat have a strong market or financial rationale),and to cofinance with GEF when possible.9

Some so-called strategic investors and inves-tors with social and environmental objectives maybe willing to accept slightly lower returns. How-ever, equity funds targeted at biodiversity sectorsseeking returns of 15–20% (rather than the 30–35% typical of commercial investment funds) muststructure their investments for expected returnson investment of 25–35% so as to yield a totalfund return of 20% (high returns for a few suc-cessful investments net of fund expenses andpoorly performing investments). Funds with in-vestments from multilateral and bilateral institu-tions and foundations may be willing to acceptlower returns in return for achieving developmentand conservation objectives.

Notes

1. K. Murphy, “There’s Big Green in Organic Food,”

Business Week, October 6, 1997, 170.

2. T. van Bellegem, “Green Investment Funds in the

Netherlands,” paper presented at the Tenth Session of

the Global Biodiversity Forum, Bratislava, Slovakia, May

1–3, 1998.

Financing Needs 43


3. Jeffrey Atkins, President, Sustainable Forest Sys-

tems, personal communication, 1997.

4. “Chilean Forestry Project Gets Government’s 2nd

OK,” Wood Technology, March 1998, p. 10.

5. John Forgach, AR2, Inc., personal communication,

February 11, 2000.

6. The largest funds are Hancock Timber Resources

Group, Resources Investments International (in the

United States, New Zealand, and Chile), Xylem Invest-

ments, Wachovia, Prudential, and Forest Investment

Associates. Hancock’s investments are not certified by

the Forest Stewardship Council, but Hancock insists that

the managers of its forestry investments follow best

environmental practice. Forestry funds/investments are

historically considered a low risk, with steady real re-

turns of 6–15%. The National Council of Real Estate

Investment Funds publishes an index for institutional

forestry investments that is dominated by Hancock’s

funds. See also D. Starkman, “Hancock Timber Trees to

Solve Its Knotty Problem,” Wall Street Journal, Febru-

ary 11, 2000, p. B4.

7. G. Nolet and S. Carrizosa, eds., Investing in

Biodiversity: Workshop Proceedings, Inter-American De-

velopment Bank, Environment Division Report ENV-

111 (Washington, D.C., September 1977); Deutsche

Gesellschaft für Technische Zusammenarbeit (GTZ),

Biologische Vielfalt erhalten! Eine Aufgabe der

Entwicklungszusammenarbeit, GTZ Report 402

(Eschborn, Germany, 1995).

8. In mid-1999, the Nature Conservancy launched

EcoEnterprises Fund, a $10 million fund, with $5 mil-

lion from the Multilateral Investment Fund to pro-

vide capital and technical assistance to its NGO

partners in Latin America to start revenue-generating

activities.

9. See D. Younger and M. C. Rubino, Private Capital

for the Global Environment, IFC Environmental Projects

Unit Working Paper, forthcoming.

5Moving Forward

45

To reiterate a point made throughout this discus-sion, biodiversity businesses offer entrepreneursand investors alike significant opportunities foreconomic gain while performing a valuable ser-vice to humankind. A few questions remain to beanswered, however, before much larger amountsof money are invested in such enterprises. Thecritical question for conservationists is: Can thesebusinesses expand faster and thereby act morequickly to stem biodiversity losses? A key ques-tion for investors is: Can the market growth of thevarious biodiversity sectors be sustained or in-creased? This chapter provides a few brief obser-vations about current conditions in the market thatmay help point the way forward.

The Business Response

Entrepreneurs are responding vigorously to mar-ket demand: the rapid growth of natural foods,ecotourism, and sustainable forestry and the num-bers and variety of businesses identified in theTerra Capital Fund feasibility study attest to thisresponse.

Reaching Mainstream Markets

Biodiversity business sectors are still small in rela-tion to the overall market in which they operate,although they have made considerable headwayin recent years. Natural foods have entered the“mainstream” food sector in North America andEurope. Supermarkets now feature organic pro-duce, and companies that deal in such productsare listed on stock exchanges. Certification and

environmental labeling for wood products aregaining rapid acceptance by producers and retail-ers in Europe. As the North American, European,and Japanese food and forest products marketsseek out supplies in emerging markets, some pro-ducers in Latin America are likely to continue torespond to market opportunity and seek certifica-tion. Genuine ecotourism remains a tiny percent-age of the overall tourism market.

Investment Interest

Biodiversity businesses are attracting traditionaland new sources of investment. Traditional sourcesinclude the money invested by agribusiness andinstitutional investors into the natural foods in-dustry in North America and Europe during thepast five years. This investment is beginning tospill over to Latin America as the companies fi-nanced by these investments expand and seekreliable and larger sources of supply. New sourcesof investment are led by a few innovative invest-ment or venture capital funds such as Terra Capi-tal Fund, Triodos, and Corporación FinancieraAmbiental. Despite these initiatives, biodiversityinvestment opportunities remain largely unknownto many at international and local banks, institu-tional investment companies and funds, and mul-tilateral agencies.

Certification

The recognition and success of certification varyby industry. Certified organic agriculture has been


well established for more than 20 years and hasbecome the most widely accepted indicator of apotentially biodiversity-friendly agricultural prod-uct. The forestry industry and concerned NGOshave established certification and best-practiceinitiatives. So far, those most receptive to certifi-cation appear to be the primary producers andbuyers of raw and processed wood products,rather than end-use consumers. A hurdle forecotourism is that almost all nature tourism isadvertised as ecotourism, whether or not the busi-ness contributes to biodiversity conservation.However, tourism organizations have identifiedbest practices, and businesses teaming up withNGOs may begin to educate consumers aboutthe differences between ecotourism and naturetourism.

Public Policy and Public-PrivatePartnerships

Several initiatives will help to promote businesssolutions to biodiversity conservation:

• The Forest Market Transformation Initiative,sponsored by the MacArthur Foundation and theWorld Bank during the mid-1990s, created ForestTrends in 1998, a nonprofit group with three yearsof funding to promote private sector sustainableforestry projects. Other measures likely to encour-age sustainable forestry and forestry conservationare the alliance between the World Wildlife Fundand the World Bank, the meetings of forestry com-pany chief executives convened by the WorldBank, and the creation of major forest reserves bythe government of Brazil. In an ideal world, theearth’s remaining primary forests would be pro-tected as biodiversity reserves, with limited selec-tive harvesting of specialized woods not availablefrom plantation forests.

• Several large ecotourism, organic agriculture,and multiproduct businesses that combine privatesector and NGO partners are in the design stageand may come to fruition in Latin America andelsewhere. The multiproduct businesses seek to

conserve large landholdings or large areas of landby working with landowners and local communi-ties in setting goals for projects that combine for-estry, NTFPs, bioprospecting, ecotourism, andsustainable agriculture.

• The government of Brazil is designing lawsand regulations for domestic biodiversity prospect-ing and started the Bioamazônia, a public-privateprogram that will invite private sector partners todevelop and use the biodiversity and genetic re-sources of the Amazon. Bioamazônia is overseenby PROBEM (Programa Brasiliero de EcologiaMolecular).

• Programs seeking to conserve the Meso-american Biological Corridor, a network of reservesand national parks from Mexico through Panama,have received World Bank, GEF, and bilateral fund-ing during the past decade. These programs arebeginning to engage the private sector in conser-vation efforts.

• Business schools (e.g., INCAE in Costa Rica),hands-on training universities (e.g., Earth Collegein Costa Rica), and small business training courses(e.g., sponsored by the Multilateral InvestmentFund) include sustainable development andbiodiversity conservation components in theirtraining materials.

• Various industries, in concert with NGOs, areformulating new initiatives that seek to promotebest management practices for shrimp farming,reef fishing, and the aquarium trade.

The Way Forward

The biodiversity businesses described in this re-port are pioneers in the field. To those who fol-low in their wake, they demonstrate both therewards of entrepreneurship and the lessons ofexperience. Above all, they provide evidence thatbusiness activities can actually conserve and makesustainable use of biodiversity. Events of the pastfew years suggest that the growth of the industry’svarious sectors may accelerate and thereby helpbiodiversity enterprises meet conservation andmarket development objectives.

Appendix:Examples of BiodiversityBusiness Opportunities

47

Sources of Information: Methodology

Between 1994 and 1998 IFC collected informa-tion on biodiversity-linked businesses in LatinAmerica. The project began in 1994 with a feasi-bility study (sponsored by IFC and the Heinz En-dowments) and was extended in the next threeyears by IFC in conjunction with the developmentof the Terra Capital Fund (the biodiversity fundfor Latin America). The resulting database onbiodiversity-based industries is complemented byinformation from the IFC/GEF Small- and Medium-Scale Enterprise Program on project opportuni-ties in Latin America. The examples of deal flowprovided here also draw on work sponsored bythe John D. and Catherine T. MacArthur Founda-tion and conducted by EA Capital.

IFC and the Terra Capital Fund manager identi-fied more than 100 ventures that might meet boththe financial return and biodiversity criteria of TerraCapital Fund. Of these projects, about 20 werereviewed in great detail. For other businesses, onlypartial information was gathered.

The information in this appendix is presentedfor illustrative purposes only. Some of it is now outof date and its reliability uncertain. Because someof the information was confidential, details aboutsome projects are not given or the location or otherfeatures are omitted.

Project Characteristics

Consumer demand for environmentally sensitiveproducts has given rise to new industries that ser-vice every level of the product cycle or value chain,from the supply of raw materials to processingand servicing operations, to the manufacture ofthe final product and retail sale. The new compa-nies within these industries set, certify, and auditenvironmental standards; provide specialized en-gineering and design services; and develop envi-ronmental technology.

These companies differ in size and have theirroots in a variety of endeavors: noncommercialdevelopment projects that spin off viable busi-nesses; successful microenterprise projects in needof private investment; small and medium-sizedbusinesses in start-up or expansion phases; largerbusinesses that want to convert to sustainable prac-tices; cooperatives seeking links with processingand marketing companies; and service companiesthat certify business operations and market sus-tainable products.

The size of the enterprises examined rangedfrom US$250,000 to US$10 million. A few largerbusinesses were identified in ecotourism (multisiteventures worth up to US$25 million), sustainableforestry (US$10 million to $50 million), and or-ganic agriculture (processing plants for oils or sugarworth US$10 million to US$25 million). The great-


est number of opportunities were identified in thesustainable agriculture sector. A significant num-ber exist in forestry and ecotourism and a smallernumber in nontimber forest products. The studyteam found a diverse and growing number ofproject developers, business incubators, entrepre-neurs, and NGOs that could be formed into a dealreferral system. Financiers and entrepreneurs willbe able to tap these networks to locate a growingsupply of projects over time.


Brazil

Organic and Shade-Grown Coffee. Severalmedium- to large-sized coffee growers in Brazilhave converted or are considering converting tocertified organic production. Industry experts re-port attractive returns on investment for organiccoffee in Brazil and note that Japanese tradingcompanies are buying or establishing organic cof-fee farms in Brazil. Smaller operations may alsoemerge, along the lines of two U.S. organic coffeemarketing and distribution companies that haveestablished joint ventures with coffee cooperativesand roasting facilities in Mexico, Peru, and else-where. The U.S. marketing companies each haveseveral million dollars in annual sales. SeveralNGOs have published reports demonstrating thebiodiversity benefits of shade-grown and organiccoffee: most notably, they extend natural forest,conserve animal habitat, use low or no chemicalinputs, and recycle waste products.

Other Organic Agriculture. Sugar, fruit pulp,soybeans, cashews, beef, cotton, palm oil, andpalmito products are among the organic agri-cultural products in demand, primarily for ex-port to specialty and niche markets in Europe,the United States, and Japan. Organic certifiersin Brazil report that about twenty midsized ag-ricultural operations are certified, with manymore considering certification. A large Braziliantrading company with palm oil, rubber, and cattleoperations is planning organic production for partof its production.

Organic Sugar. A large sugar producer is seek-ing to convert 300,000 hectares of cattle-grazingland to organic sugar and wants to build a dedi-cated mill to process the sugar. Cattle ranching andorganic sugar production make an interesting com-bination with several symbiotic connections.

Argentina

Organic Agriculture. In 1996 Argentina’s Min-istry of Agriculture issued a report devoting a pageto each of 23 mid- to large-size companies pro-ducing and exporting certified organic products.These companies produced apples, pears, beef,soybean, corn, sunflowers, and olive oil. In 1996their operations covered about 150,000 hectares,which was up from 10,000 hectares in 1992. Sev-eral companies are seeking long-term investmentcapital for expansion.

Organic Beef. Two groups in Argentina pro-cess organic beef, each composed of severalranches. Their combined sales amounted to morethan US$10 million in 1996. A third ranch has aboutUS$500,000 in sales. One of the processing facili-ties is seeking US$15 million to expand its ranch-ing operations.

Paraguay

Organic Sugar. Two medium-sized organicsugar producers export their high-quality crop toU.S. or European juice and organic food manu-facturers. Both may consider seeking expansioncapital and joint venture partners.

Bolivia

Organic Cacao. Approximately 60% of the out-put of a marketing and processing cooperative,which represents 840 cacao growers, is certifiedorganic. Part of its production is combined withcertified organic raw sugar from Jamaica and madeinto certified chocolate products in Germany.

Organic Soybeans. A Latin American producerplans to develop 5,000 hectares of organic soy-


beans on existing agricultural land in Bolivia. Theproperty is buffered by natural forests.

Peru

Native Cotton. With annual sales of several mil-lion U.S. dollars, one Peruvian company recoverscertified organic, naturally grown, and coloredcotton fiber from peasant farmers. Through its jointventure partner, which has several textile mills,the company has access to technical and market-ing expertise and sales distribution channels inEurope, the United States, and Japan.

Ecuador

Organic Lettuces and Flowers. This coopera-tive, initially funded with a bilateral grant, pro-duces mini-lettuces for gourmet salads sold onthe local market in Quito. Its sales are now grow-ing at more than 100% a year. It is planning anexpansion into edible flowers for export.

Organic Bananas. About 500 hectares of ba-nanas have already been converted to organicproduction. This family-owned business seeks todevelop an additional 500-hectare plantationnearby.

Chile

Agricultural Inputs. This project will commer-cialize leading-edge, organic, and biotechnologi-cal techniques and equipment for producingbiofertilizers and biopesticides. Much of the tech-nology was specifically designed to be managedby semiskilled workers at the village level. Targetcustomers include larger export farms and coop-eratives that are converting to organic productionmethods.

Underutilized Species and Other Agriculture

Castor Oil Production. With the recent devel-opment of a technique for mechanically harvest-ing castor seeds, castor production has returnedto Brazil. A Brazilian company is moving from

pilot to full-scale production and the processingof castor oil for food and industrial applications(with phased investments in several million dol-lar increments). In addition to producing oils, thecompany has proprietary technology for resins(used in the telecommunications industry) and forfoam and plastic substitutes (used for automobileparts).

Amazon Fruit Processing. There are at least 48native Amazonian fruits with commercial poten-tial.1 Research institutes and entrepreneurs areproviding farmers with seedlings to plant in greaterconcentrations than would occur in the wild. In1995, a Brazilian NGO that had studied these fruitsand worked with local farmers in the northweststate of Rondonia sold its fruit pulp–processingfacility to Congelado, a small Brazilian companyspecializing in frozen dinners. The company, oncefeatured in the New York Times, planned to investUS$1.2 million in equipment to sterilize andvacuum-pack the fruit pulp for sales in theMercosur region and exports to the United Statesand Europe.2

Vacuum-Processed Storage. A new process us-ing European technology and licensed to a com-pany in Brazil stores grain in vacuum-sealedstorage bags. Grain can be stored in this way forup to five years without loss of quality or spoil-age. By increasing agricultural efficiency, the tech-nology may reduce the need for agriculturalexpansion into forestlands.

Andean Countries

Alpaca. Several companies are reintroducingnative alpaca in the Andean countries. Some ofthe wool is sent to clothing manufacturers in Italy.

Aquaculture

Brazil

Amazonian Fish. In the 1970s, research beganon several overfished Amazonian and Pantanalspecies, including tambaqui, matrinxa, pirarucu


(a freshwater cod), pacu, and pintado (a nativecatfish). In recent years, the number of growersand hatcheries (both large and small) has begunto increase as the production technology has ma-tured. Several hybrids are also grown. Most of thefish is sold in local Brazilian markets, althoughone exporter is flying frozen filets from Manaus tothe United States (still mostly wild caught fish).

Aquaculture Expansion. An established Brazil-ian company with significant aquaculture experi-ence plans to expand its production of nativespecies and invest in food and processing plantsand a cold storage unit.

Pacu, Cashew, and Teak Production. A com-pany with 4,000 hectares of teak (FSC certified)on its 10,000-hectare property is seeking to addcertified organic cashew and pacu aquaculture tothe business to generate near-term revenues. Thecashew trees will provide nuts for export and feedfor pacu production.

Scallop Aquaculture. Native scallops and othermollusks and local finfish have been overfishedin the Ilha Grande archipelago. Two pilot projectsand university research are studying the possibil-ity of farming these species and repopulating de-pleted native stocks using methods developed inChile and elsewhere. Privately held hatcheries planto supply small scallops to fishermen for growouton a contract basis and to larger growout facili-ties. All of the operations would be linked by acoordinated marketing campaign and backed byan industry-supported university research facility.

Sustainable Forestry

Argentina and Chile

Sustainable Harvesting Operation. Forestal Tril-lium Ltda., a subsidiary of Savia International ofBellingham, Washington, owns more than 400,000hectares of woodlands in Tierra del Fuego. Thecompany plans to selectively harvest lenga andother species, prepare several environmental im-pact statements, and seek FSC certification.3

Bolivia

Sawmill Operator. The company manages asawmill with a processing plant. It owns 700,000hectares of tropical woodlands and is launching asustainable harvesting program.

Brazil

Precious Woods. A Swiss company is startingan operation on 50,000 hectares of forest, with30,000 hectares set aside as a genetic reserve. Thecompany raised US$25–40 million from Europeanpension funds, private investors, and local land-owners and seeks additional financing for a pro-cessing plant and harvesting equipment. PreciousWoods also has operations in Costa Rica.

Integrated Manufacturing of Certified WoodProducts. There is talk of combining the follow-ing companies into one operation: a company thatproduces flooring, window frames, and doors;another with a sawmill and milling plant; and athird company that could be a source of certifiedwood.

Manufacture of Finished Wood Products. Anestablished company produces high-quality woodproducts, primarily doors and windows (120,000cubic meters annually), and is selectively harvest-ing and reforesting 20,000 hectares of tropical for-est. The company is seeking to expand to 250,000hectares of production.

Integrated Sustainable Forestry Company. Thecompany owns 350,000 hectares of tropicalrainforest and is interested in developing an inte-grated sustainable harvesting system, includingsawmill and industrialization units.

Integrated Sustainable Forestry Project. Theowner of 220,000 hectares of forestland, borderedby a major roadway, wants to develop an inte-grated certified sustainable forestry project thatincludes a sawmill, value-added products, and trad-ing operations.


Veneer and Plywood Manufacturer. One of thelargest sawmill companies in Amazônia (it pro-duces veneer and plywood from tropical soft-woods) is for sale. It harvests and replants its own250,000-hectare property.

Paraguay

Sustainable Forestry. A two-year-old start-upcompany purchased low-priced forestlands (20,000hectares to start) to harvest, replant, and processmixed species of hardwoods (mostly in second-ary forest). The company raised capital from U.S.forestry and institutional investors, has establisheda milling operation, and plans to expand by work-ing with other landowners and purchasing addi-tional land. The company is also harvesting andexporting yerba mate (a tea).

Venezuela

Forestry Concession. This privately financed,environmentally conscious concessionaire con-ducts harvesting operations over very long cycles(40 years) in a 185,000-hectare tract of forest-land. The operator has funded research on theprotection of endemic biodiversity in concessionforestry.

Flooring Manufacturer. The company producestropical wood flooring and has recently installedan oriented strand board plant. It owns 132,000hectares of forestland and is interested in devel-oping a sustainable harvesting system.

Mexico

Mexico has several community-based forestryoperations that have received FSC certification.These ejidos (cooperatives) supply wood to floor-ing, charcoal, and other manufacturers.4

Laminated-Flooring Manufacturer. This six-year-old laminated-flooring manufacturer sells inthe local market and exports to the United States.

The company is a major purchaser of wood (largelysecondary species) from a successful community-based sustainable forestry program that has beenoperating for more than a decade on 500,000 hec-tares of threatened forest in the Yucatan penin-sula and supports 80,000 people. After receivinga recent cash infusion from Mexican and U.S. in-vestors, the flooring manufacturer teamed up witha U.S. marketing and sales company and revampedits production line and quality control to meetU.S. market standards. Sales are expected to growrapidly if market acceptance of secondary speciesis established.

Honduras

Forestry Cooperative. This indigenous commu-nity forestry program on 50,000 hectares has re-ceived financial and technical support frominternational aid agencies. It produces timber thatis sold to local value-adding companies. Furni-ture produced from this wood is sold to majorU.S. and U.K. furniture retailers, such as Smith &Hawken.

Central America

Portico. This certified, vertically integrated doormanufacturer owns and manages thousands ofhectares of rainforest between two national parks.It exports to North America, where it has a sig-nificant percentage of the upscale solid doormarket.

Nontimber Forest Products

Brazil

Rubber Products. The company purchases pro-cessed rubber from tappers and indigenous groupsin the Amazon and then manufactures and sellssimulated leather book covers (for diaries), rub-ber bags, and clothing to retail stores in Brazil,the United States, and Europe. It is seeking fi-nancing to expand its sources of supply.


Palm Heart Processing. Located in the Ama-zon, an established producer with a large land-holding of native forest selectively harvests fruitfrom a species of palmito that regenerates andproduces subsequent crops. Another proposedventure seeks to purchase palm hearts from thelocal population for processing on a river bargeand at an industrial factory. The canned palmhearts would be sold to the United States andEurope.

Pro-Natura International operates a large sus-tainable development project in Juruena, Brazil.With GEF and private sector funds, Pro-Naturaand local residents are developing production andvalue-added processing for several NTFPs for thedomestic and international markets. Total invest-ment sought over a five-year period is US$8.5million.

Bolivia

Latex Factory. Located in the Pando region ofthe Bolivian rainforest, the company manages itsown concession of wild and plantation rubbertrees. The rubber is processed into sheets that aresold to the tire and shoe industries.

Brazil Nut Factory. This factory in the BolivianAmazon Basin purchases Brazil nuts from localcollectors and markets them to the United Statesand Europe. The company is seeking additionalfinancing.

Nature-Based Tourism or Ecotourism

Brazil

Rainforest Hotel. Brazilian architects, teamed upwith an international hotel management company,have proposed to build a 200-room luxury hotelnear Belem on a very large property. The unde-veloped part of the property would be managedby an international NGO. A portion of the profitswould benefit a foundation responsible for con-servation and education activities at the site andin the local area.

Rio Negro Hotel Expansion. An NGO is seekinga business partner to complete a US$7 million,100-unit facility on 1,000 hectares of forest alongthe Rio Negro River. The project is aimed at tour-ists seeking the “Amazon experience” and scien-tists. It is designed to have minimal impact on theenvironment, and 50% of the NGO’s share of prof-its are to go to the local community.

Model Lodge and Training Facility. An interna-tional NGO and a regional hotel association aredeveloping a training facility in the Brazilian Ama-zon for ecotourism operators and staff. A fullyoperational ecotourism model lodge would bebuilt according to the highest ecotourism standardsto provide students from the facility with on-the-job training. The estimated cost is US$2 million toUS$5 million.

Pantanal Ecotourism. Several opportunities ex-ist in this region. A Brazilian NGO is working withlocal ranchers and an international NGO to createa network of ecotourism inns. Ranchers wouldconvert part of their territories to ecotourismlodging and facilities. The project would cost anestimated US$2 million. Also, a large Brazilian con-struction company is planning a lodge and mixedagriculture/aquaculture production based on sus-tainable development practices at a large land-holding in the Pantanal. Another example is anestablished ecotourism lodge with about 40 roomsthat is profitable only in the dry season. The com-pany may team up with an Atlantic forest lodgeand move its staff to the sister lodge for half ofthe year.

An NGO ecotourism project, with financial andtechnical assistance from a North American NGO,owns 229,000 acres of forest and has developed asmall ecotourism/education operation on the prop-erty. It is seeking $3 million to build additionalecotourism sites on the property and expand op-erations.

Ecuador

Wildlife Reserve Lodge. A local expedition com-pany runs a small ecotourism lodge in an Amazo-


nian rainforest wildlife reserve. The companyneeds capital to expand its facilities and imple-ment an extensive land management plan.

Ecotourism Projects. An Ecuadorian tourismcompany is seeking capital for two ecotourismventures, one in the Ecuadorian Amazon and theother in the Cajas National Park near the city ofCuenca. The projects require a total investment ofUS$1.2 million.

Costa Rica

Ecotourism Lodge. The company operates anecotourism lodge and biological research station(with butterfly and tree seedling production) onmore than 1,000 hectares of protected rainforest.

Rainforest Aerial Tram. Now in operation forthree years, this ski lift with gondolas allows visi-tors to move through the canopy of a rainforestlocated 45 minutes by car from San Jose. The WorldBank’s Multilateral Investment Guarantee Author-ity provided risk insurance for the venture. Thecompany is considering other sites in the region.

Mexico

At least two tourism/hotel groups are examiningthe feasibility of multisite ecotourism lodges inthe Yucatan Peninsula and elsewhere in Mexico.

The local state governments and universities arecollaborating on regional tourism plans. One groupis a Mexican hotel company. The other, led byNorth American real estate and hotel investors,intends to develop several ecotourism lodges inMexico and the Caribbean.

Regional

Proposed Foundation Network. A foundationproposed a US$20 million business to purchaseor build and then operate a dozen or moreecotourism lodges in Latin America in associationwith a major tour operator. Each lodge would bebuilt and operated according to ecotourism stan-dards and would serve as a model for otherecotourism projects.

Notes

1. D. J. Schemo, “Hope for Amazon Rain Forest: New

Fruit,” New York Times, September 12, 1995.

2. Schemo, “Hope for Amazon Rain Forest.”

3. An early 1998 status report appears in “Chilean

Forestry Project Gets Government’s 2nd OK,” Wood

Technology, March 1998, 10.

4. See J. R. Ward and Y. Bihun, “Stewardship of

Mexico’s Community Forests,” a Natural Resources De-

fense Council paper, April 1998, submitted for publica-

tion in a forthcoming book edited by Conservation

International.

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