Plantation owners who are about to see their annual Forest Premium payment come to an end will be very interested in Coillte's new Premium Partners scheme that offers the prospect of an ongoing annual income from their plantations for up to a further 20 years.
Apart from the appeal of a possible additional 20 years of payments, this scheme removes the risk and uncertainty of what the future may hold in terms of forest maintenance, timber markets, harvesting, roading and the requirement to replant.
On the other hand, the plantation owner will be trading off a much enhanced pay day on maturity of his/her plantation than will apply under the Premium Partners scheme.
Through the partnership, Coillte will manage all aspects of the private forest plantation, including the harvesting and sale of the timber, while the landowner retains ownership of the land.
Along with the annual payment, forest owners will also receive a lump sum payment when the crop has been clear-felled.
The lump sum will be based on the quality and age of the crop, and will be determined at the outset and written into the partnership agreement.
Coillte Premium Partners is aimed at good quality plantations of 10 hectares or more that are approximately 20 years of age, are Yield Class 20 or above, and are predominantly Sitka spruce.
Broadleaves and diverse conifers are excluded from the scheme.
WHO DOES THE SCHEME SUIT?
The scheme would appear best suited to farmers who have relied on the Forest Premium to supplement their income and who would have a greater preference for an annual income stream for the next 20 years than a larger lump sum at clearfell time.
They will still receive a lump sum under the scheme, but it will be considerably less than the net proceeds of clearfell.
Forest owners, particularly the slightly younger ones, who actively manage their own forests may not find the scheme particularly attractive when compared to reaping the optimum rewards of harvesting their own thinnings and final clearfell. Case Study 1 illustrates this point.
It is evident from the comparison of the two options examined in the case study that the 'Owner Managed' approach yields a greater financial return of approximately 30pc.
Coillte would argue that the CPP option removes the risk and the responsibility of managing the plantation. This is partly true, but not entirely as the risk of severe windblow or fire is a shared risk and may result in an area for payment adjustment if either occurs.
On the management side, it is the case that most forest contracting companies and forest consultants will be more than happy to manage the crop right through to and including clearfell in return for a share of the thinnings and clearfell proceeds.
This cost is factored into the net clearfell proceeds as included in the case study.
So if one is to look at the scheme objectively, it is very attractive for plantation owners who do not view the final payout at clearfell time as being their primary concern, but rather having access to an annual tax free income stream for up to 20 years.
This scheme could prove an absolute godsend to such people and the trade-off of sacrificing a substantial chunk of the clearfell profits for an annual payment may be a good one.
Alternatively, those who are prepared to manage their own plantation, or have it managed for them, will probably be unwilling to trade an annual income for a far more generous final payday.
HOW IT WORKS
Plantation owners who meet the criteria, such as having a quality plantation of Sitka Spruce at or nearing the end of its Forest Premium term, should contact Coillte. They will carry out an initial assessment of the suitability of the crop. Assuming the crop is suitable, they will then carry out a full inventory and site survey, mapping the commercial area of the suitable crop.
A partnership and lease agreement will be drawn up, which will set down the area on which payment will be made along with the final clearfell lump sum amount. The agreement will also set out Coillte's undertakings to manage the crop from commencement through to clearfell.
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors. www.som.ie. Ph: 051 640397