Facts and figures: Are beef and sheep farmers better off planting forestry in their land?

Ciaran Moran

Ciaran Moran

Recent research by Teagasc examined the factors affecting the returns from the afforestation of agricultural land.

The Research led by Mary Ryan of Teagasc, noted that forestry is a long-term crop with rotations of over 30 years for fast-growing conifers, and up to 100 years for slower-growing broadleaf species.

Planting a fast-growing conifer will yield an annual tax-free forest premium of €510/ha for the first 15 years of the forest rotation.

After this period, the economic return from forestry arises mainly at final harvesting, with intermediate income if forests are thinned.

The research stressed that making a decision on the basis of the figures applying for one year only, is taking a short-term view.

“For a long-term land-use change, such as forestry, landowners should take into account the full range of factors that affect the returns from forestry, i.e., the costs and revenues from managing and harvesting timber over the lifetime of a forest.”

Opportunity cost

The research highlights that landowners, who plant agricultural land, incur an opportunity cost in relation to the loss of agricultural income on the planted land over the lifetime of the forest.

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The opportunity cost of planting for individual farmers varies greatly depending on the farm system, as well as the soil type.

The agricultural opportunity cost is made up of income form the market, as well as subsidy income and changes over time as costs, prices and subsidies change.

“One of the advantages of forestry as a crop is that long-term timber prices have kept pace with inflation. In addition, it is possible to capitalise on high timber prices by harvesting a year or two earlier/later.

“Fluctuations in farm incomes over time (e.g., from the adverse weather in 2009 to high market prices in 2011), affect the opportunity cost of planting. Policy changes also affect the opportunity cost,” Teagasc found.

Thus, farmers who are considering forestry should look at the longer-term financial and physical components of the agricultural enterprise in conjunction with the long-term returns from the proposed forest enterprise.

Long-term net gain/loss from planting

A recent analysis undertaken by Teagasc calculates the afforestation income resulting from the planting of a conifer (Sitka spruce GPC3) crop for each of the farm systems.

As dairy farmers have the highest opportunity cost, they stand to lose significantly more by converting to forestry.

This is also the case, to a lesser degree, for dairy other and tillage systems.

The farmers who stand to benefit the most from planting are those in the cattle and sheep systems, who are likely to plant land that is marginal for agriculture but which is highly productive for forestry.

The highest gains are evident on marginal land at yield classes 18 and 20.

However, the average annual net return across all but the best and worst soil types is positive for cattle systems and is highest on land of limited use, which is marginal for agricultural use, showing that these farmers stand to gain up to €228 per hectare depending on soil class and system on average, for each year of the forest rotation.

The net return from changing from a sheep system to forestry is largely similar.

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