The market
Global production of pine resin is approximately 1.5 million tons. The resin is processed into rosin and used as an ingredient in the paper, paint, ink, adhesives, and turpentine industries, as well as in the production of turpentine, a highly flammable biochemical. Global production of renewable turpentine reaches 370,000 tons. Its use has been limited to local mixtures for varnishes and paints. The global market for these natural products—which are largely being replaced by synthetic products derived from crude oil—is valued at less than one billion euros.
Innovation
When Mr. Soichiro Honda introduced his motorcycle in 1947, it was powered by turpentine. At the time, gasoline was hard to come by, and since 70% of Japan was covered in forests, mostly pine, Mr. Honda organized the harvesting, distillation, and distribution of turpentine alongside the sale of the bicycles. It was unique to provide both the means of transportation and the fuel. However, this engine required a lot of pedaling to warm up, and once combustion began, a cloud of smoke quickly emerged, creating a "chimney," as the motorcycle was nicknamed.
Paolo Lugari and his team at Las Gaviotas pioneered the introduction of palm oil-based biodiesel a decade ago. Las Gaviotas operated the first biodiesel plant in Bogotá, Colombia, in 2004, but realized that the methanol content and excessive glycerin byproducts imposed commercial limitations. The team then turned its creative mind to turpentine, a byproduct of resin processing. Located in Vichada, Las Gaviotas imported fuels for tractors and motorcycles at great expense. Experts estimated that purifying turpentine into a clean fuel was too costly. However, Paolo Lugari and his colleagues took up the challenge and implemented a four-stage cascade that removes all impurities larger than 10 microns. If Mr. Honda had had access to such pure turpentine, he would have proposed massive reforestation in the tropics alongside conquering the global bicycle market.
The innovation goes beyond simply purifying turpentine essence through gravity and time. The novelty lies in the design of a business model that generates four revenue streams from a newly regenerated forest, transforming a savanna into a forest as it was before the arrival of cattle ranchers who cut down trees, logged and burned the area, and planted non-native grasses.
The first cash flow
Las Gaviotas has established itself in the world of sustainable and competitive businesses with the introduction of solar water heaters. With 40,000 solar water heaters installed and a 25-year warranty, the research center has proven it can compete in terms of both price and performance. Forest regeneration costs approximately $1,100 per hectare. An emerging forest will increase the soil pH, which filters rainwater. The sale of drinking water becomes a primary source of revenue and also forms part of a public health strategy in a region where a large majority of the population suffers from gastrointestinal illnesses due to water scarcity.
While Las Gaviotas is able to meet all local demand, the surplus of filtered water is sold to Bogotá. After seven to eight years, the young forest begins to produce gum resin. Because Las Gaviotas generates its own renewable energy on-site and processes the resin locally, jobs are created and cash flow is generated. The pursuit of additional cash flow, including reducing fuel imports, has led to a third and fourth source of revenue: turpentine and carbon credits.
The opportunity
If Las Gaviotas were to reach its full capacity by utilizing its existing 8,000 hectares with approximately 3.6 million pine trees, it could produce 2.3 million liters of turpentine as a renewable biofuel annually. No external input is required. Considering that the cost of unloading fuel in the region is €3 per liter, converting turpentine into a pure renewable fuel sourced from the forest adds revenue to the bottom line. Money that would have otherwise left the local economy now circulates within the region, generating jobs and income.
Anyone located near an existing pine forest could harvest the trees' resin. Instead of processing the resin solely for rosin, a biorefinery could be built to generate all four cash flows. It's profitable. When JP Morgan studied the financial data for the existing regenerated forest in Colombia, planted by Las Gaviotas employees, the emerging markets investment bankers concluded that regenerating a tropical rainforest in a savanna—which was once a forest—generates a cumulative, discounted net cash flow in 11 years. This means that the amount invested in the first year is fully recouped in just over a decade. It's no surprise that the president of JP Morgan took the time to visit the president of Colombia to champion this investment opportunity.
While different pines produce varying amounts of turpentine, it is estimated that stressed species, such as those in the tropics planted in poor soils like the Orinoco Basin, and those at high altitudes like Bhutan in the Himalayas, produce at least half a liter of pure turpentine as fuel annually. Mature trees could even produce a liter per year. Two thousand five hundred trees could produce enough fuel to power a fuel-efficient car, which averages five liters per 100 kilometers, for 50,000 kilometers. This is an attractive option for remote economies, as the proposal is not simply aimed at competing with the price and efficiency of diesel or gasoline; this approach changes the business model when an investment generates a consistent return and increases land value. The wood can then be processed into pencils for proprietary companies like Faber-Castell, creating a fifth cash flow.
Land that doesn't generate income and lacks clean water is worthless. A forest that only shelters biodiversity is at risk of destruction. Creating more added value is essential, a prerequisite for creating sustainable jobs. A newly planted forest that provides income and meets immediate needs like water and fuel is invaluable. This business model, developed by Las Gaviotas, builds social capital for the local population that surpasses the capital gains generated by holding Microsoft stock over 25 years. Who else is ready to do the same?
