Farm Ireland
Independent.ie

Saturday 17 November 2018

Forestry can still offer strong source of profit in spite of rising pressures

William Merivale

One of the most far-reaching, and damaging ideas in the Government's proposed Forestry Programme 2014-2020 is the reduction in the forest premium period from 20 to just 12 years.

While the stated aim is to encourage landowners to plant in order to achieve 18pc forest cover by 2046, this measure sends out a signal to many that forestry is not an attractive option.

And when the rising costs of insurance, fuel and other inputs, - as well as the growing importance of certification in order to access the markets - are considered, existing owners and potential new entrants may question the long term profitability of forestry.

But despite the cost pressures and policy problems, forestry remains a potentially very profitable business and timber lots from well-managed woodland will always be readily saleable.

There are large areas of land, especially the surface-water gleys found predominantly in the western half of the country, that are more productive in trees than any other crop.

The costs and returns quoted in Table 1 are a guide only. These figures fluctuate and can vary from one property to the next so must be read in that context.

Claims

Insurance premiums have risen considerably in recent years, mostly because of rising claims, especially for forest fires.

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And after this year's stormy winter when many forestry owners discovered to their dismay that their insurance policies were less comprehensive than they thought, the small print in existing insurance policies should be very carefully checked.

Premiums are based on the declared, or "specified", value of a plantation and can vary typically from €3 to €10/€1,000 value.

Forest road construction costs are very dependent on the extent to which material is available on site – if ballast has to be purchased from a quarry the cost of the stone and transport will add to the bill.

It is stated in the proposed new forestry programme that the forest roads' measures will "operate in a similar manner to the existing scheme" but we don't yet know whether the existing rate of €35/linear metre, subject to a maximum of 20m/ha and 80pc of eligible costs, will continue to apply.

With forest roads costing €40-50/linear metre it is to be hoped that there will be no further reduction in the rate of grant.

Harvesting

Harvesting costs are payable by the forest owner where timber is to be sold either at roadside or delivered into the mill.

As many private owners opt to sell their timber standing, ie the purchaser assumes responsibility for the costs of harvesting and extraction, this can lead to confusion when discussing timber prices.

Typical costs of harvesting a clearfell site will be €15/t, and €20-25/t for a thinning. Harvesting a windblown site will add at least €5/t to the costs.

Table 1 gives an approximate indication of the potential returns from a fairly typical high-yielding farm forest plantation of 12ha (30ac).

There are many examples throughout the country of farm forests showing growth potential of yield class 24+ (and greater). It is now generally accepted that such areas will be ready for clearfell before age 30.

Windblow

Indeed, beyond age 30 they will become increasingly vulnerable to windblow.

The assumption is that thinnings will be light in order to minimise the risk of windblow and ensure a stable crop ready for clearfell in the shortest possible timeframe.

The table ignores incomes from forest premiums. The net profit of c.€16,500 equates to an annual profit of €590/ha, or €240/ac – a very good return for marginal agricultural land.

When the current annual premium payable to year 20 is factored the return becomes still more attractive.

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