Growth potential - investing in forestry
Solid yields and low risk factors make forestry an increasingly attractive investment option
Published 27/01/2016 | 02:30
There is a growing interest worldwide in forestry as an investment due to a combination of its low volatility, relatively risk free status and level of returns achievable.
Investors have been making inroads into the sector long before the recent turbulent ride on the stock market as many consider forestry as an investment that moves away from traditional asset classes.
Forestry has many natural properties such as age, class, species, market and end use which allows flexibility in management to achieve best financial returns. Traditionally it is seen as providing a solid yield, due to its growth rates, with relatively low ongoing capital investment.
Forestry is one of the oldest forms of investment with the diversity of timber products produced now part and parcel of everyday life including timber to build homes, fuel and food packaging.
The recent COP21 climate change conference in Paris is likely to lead to increased integration of forestry into combating climate change. The agriculture sector accounted for 32.6pc of Ireland's total national emissions in 2013.
Forestry removes CO2 from the atmosphere and also provides raw material for construction and fuel for renewable energy generation. The key to mitigating Ireland's agricultural emissions lie both in increased on farm efficiency and forestry expansion to sequester emissions from the air.
Forestry is considered a real tangible asset, rather than stocks that have many investors quaking in recent days. It also provides a real return to investors from sales of timber, and annual forest premiums in the case of Irish forestry.
The annual forest premiums available to all landowners are detailed in table 1. Separately, farmers can continue to receive their Basic Payment Scheme on land they plant to forestry. This provides an additional incentive to farmers to engage in forestry, particularly on marginal land.