Green investors in the red / Govt lumber scheme returns fall as prices hit record low

The Yomiuri Shimbun

About 80 percent of the lumber generated by the Forestry Agency's green owners' system--a scheme to get people to invest in wood produced from state-owned forests--went unsold at auctions in fiscal 2009, causing many investors to lose their money, it was learned Monday.

Under the government-run investment scheme, the agency invited investors to put money into lots of cedar and cypress lumber produced from state-owned forests in 4,700 locations across the nation. The unsold wood from the investments that matured last year came from 417 sites covering 2,200 hectares.

The scheme, which began in fiscal 1984 and was discontinued in fiscal 1998, was supposed to provide investors with a return when their 15- to 30-year investments matured, after the trees were fully grown.

The money was spent on other agency programs to improve and maintain state-owned forests.

In June last year, 239 plaintiffs filed a collective lawsuit against the government demanding compensation for losses from the scheme. The lawsuit is under way at the Osaka District Court.

The average return for investors whose contracts matured last fiscal year was 280,000 yen per lot, much lower than the initial investment of 500,000 yen.

Contracts for the 70,000 investors are going to mature as wood prices are at their lowest level since World War II.

Some investors have said they think the scheme already has collapsed.

Junko Yamanaka, a 64-year-old Tokyo homemaker, said with a sigh, "I was hoping to use the return toward my retirement."

She invested 500,000 yen in a cedar lot in Shizuoka Prefecture in 1985. Though her contract matured in March last year, the wood from the forests in which she invested went unsold at auction.

The wood went to auction for the second time this June, but there were no takers and she gave up on selling it.

Yamanaka lamented the situation, saying, "It's about more than losing my investment; I can't unload the stuff even for just 1 yen."

Since the scheme began in fiscal 1984, the agency has collected 50 billion yen from 86,000 individual and corporate investors.

In fiscal 1999, when the first round of contracts matured, all of the lumber sold. But since fiscal 2001, the amount of wood unsold has steadily risen.

In fiscal 2009, wood from 417 sites--accounting for 9,400 lots--was put up for auction. Buyers were found for only 87 sites.

Eighty percent of the remaining wood--harvested from 330 sites--remained unsold.

Even when deals were reached--such as with wood from mountain forests--the prices were low.

The average return for investors in fiscal 1999 was 540,000 yen. But the figure had fallen to nearly half, 280,000 yen, by fiscal 2009.

The lowest return recorded so far--74,000 yen--was for investors of Hamamatsu forests, mainly due to a fall in the market value of mountain forest lumber.

According to the Japan Real Estate Institute, the stumpage price of cedar trees, an indicator of the value of land containing cedar forests, has continued to fall since peaking at 22,700 yen per cubic meter in 1980.

The price fell to 2,548 yen in 2009, about one-ninth of its peak value and lower than its previous low of 2,573 yen in 1952.

The agency said about 70,000 investors still have stock in the wood. "Almost all of the investors can probably expect to lose money," one agency official said.

In May, 99 investors formed an association for people who have lost money through the scheme. They said they will contact more investors to ascertain the government's responsibility over designing the "careless" investment scheme.

The lawsuit at the Osaka District Court was filed in June 2009 and the plaintiffs insist the government withheld pertinent information about potential risk when concluding the investment contracts.

Said one agency official, "When we initially opened up the scheme to investors, we had no idea how low the price of lumber would fall."