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Independent.ie

Friday 20 October 2017

Forestry delivers unrivalled asset growth compared to the markets

Investment interest in Irish forestry is rising
Investment interest in Irish forestry is rising

Ken Whelan

Investment interest in Irish forestry, from private funds and farmers alike, is rising ahead of the Government's renewal of the forestry development programme.

Paddy Bruton of Irish Forestry Services believes that forestry has become an even more attractive and safe investment since the economic collapse six years ago.

"Forestry is a real asset which the owner has control over. It is not subject to interference from outside quarters," said the director of the Kilkenny-based company.

"Shares are subject to the whims of the market place and outside commercial pressures to say nothing of the commercial abilities of the chief executives and directors who run these stock exchange listed business.

"The shareholder has no input whatsoever over how his or her investment money is used," he continued.

"Put it this way. Would an investor sleep better at night if he or she knew they had made an investment that was going to be there the next morning and was going to remain in their ownership?

"Or would they sleep better with an investment that could evaporate over night because of various economic imponderables over which he has no control or influence'',

Bruton believes that 10pc of any farm in Ireland could be converted to forestry without any adverse effect on the farming enterprise carried out on the land.

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His company has produced a new investment prospectus on the long-term investment potential of forestry for both private and farming clients.

It stresses that the forestry sector is relatively risk free, has a predictable level of returns, a low level of volatility and relatively low ongoing capital requirements and it produces solid yields relative to its biological growth.

The prospectus compares investment in property and forestry to underline the advantages of forestry vis-a-vis commercial property for farmers and private investors alike.

The prospectus says that:

l Forestry is a growing asset with moderate to low capital investment requirements and is not subject to economic cycles experienced in the commercial property sector;

l It produces a commodity which can be 'warehoused' indefinitely simply by not harvesting until the market price is adequate;

l The supply of timber cannot be dramatically increased in short time-frames as is the case in the commercial property sector and consequently there are no knock-on adverse markets price problems;

l Timber prices are less volatile when compared to property as the timeframe from planting to harvesting is much longer;

l The sale of timber is the sole business of the forestry owners whereas commercial property investors are usually operating in a sector which has to support some other kind of commercial or economic activity;

l Forestry land is finite and production can only be increased over long time-frames;

l The industry is supported by start-up grants, annual premiums and support schemes for forest improvements;

Paddy Bruton says the interest in forestry investment has increased year on year since the economic collapse especially from investors outside farming. 'It's an asset you can see and feel and it's an asset that will grow in value terms. In other words it's a safe investment''.

Expanding on his assertion that 10% of the land area of Irish farms (outside Dublin and Louth, where he says there is no uptake of the forestry scheme) could carry a forest plantation, he said;"We are talking about the marginal land on farms and ask any farmer what part of his enterprise takes up most time and money and he will tell you the marginal land."

The Government circulated its forestry development proposals to stakeholders in the sector last week. A final industry blueprint for the next five years is expected to be signed off by the Cabinet by the end of the year.

The new plan will underpin the Government's ambitions to increase acreage under forestry from its current national level of 10.5pc to 17pc over the next thirty years.

It aims to secure employment in the sector by increasing timber exports and to further developing the sector to meet our internationally agreed climate control obligations.

Forestry auction in the south-west

Tipperary auctioneer James Lee is bringing a substantial portfolio of forestry plantations in Limerick and Clare to auction before the end of the month.

Extending to 689.5ac and with a collective annual premium of €94,101, the property can be sold in lots or as an entire.

The timber is in Sitka Spruce, Japanese Larch, Sycamore, Red Oak, Ash, Mountain Ash, Cherry, Scots Pine and Beech. It was planted between 1993 and 1998, and Mr Lee describes it as one of the best forestry plantations to come on the market in recent years The lots are outlined as follows:

Two plantations known as Loughan North 1 and 2 extending to 299ac are located near Tulla in Co Clare and mainly in Sitka Spruce with some Japanese Larch.

Planted in 1995 and 1998, their estimated clearfell date is 2042. The larger of the two extends to 254ac and it has one year’s premium remaining at €26,499.50.

The 45ac at Loughan North 2 has four years left at €4,247.74 per annum giving a total of €16,990.96.

The Lough Burke plantation extending to 102ac at Driminure near Kilmaley in Co Clare was planted in 1996 and 1997 with an estimated clearfell date of 2030.

Comprising Sitka Spruce with 20pc in diverse species and about 27.6ac in broadleaf, thinning is due in the plantation and should give a net estimated return of approx. €14,000. There are three years of premiums left at €15,796.15 per annum, netting €47,388.45 at the end.

A 15.25ac plantation at Derrylusk in Castleconnell, Co Limerick is made up of Sitka Spruce, Japanese Larch and ash. It was also planted in 1996 and 1997 and is due for thinning with an estimated return of €2,000. There are two years of premiums left at €1,611.33 per annum with a total of €3,222.66.

Two parcels at Whitegate, Co Clare planted in 1994 extend to 97ac with an  estimated clearfell date of 2029. The crop of Sitka Spruce, Japanese Larch and sycamore is due for thinning that should give an estimated return about €18,000. There is a total outstanding premium of €9,851.46 on this plantation remaining in p0remiums.

All the  plantations go to auction on Wednesday, September 24 at 3pm at the Newport offices of REA John Lee.

Jim O’Brien

Indo Farming