Forestry: Money really does grow on trees

People who have invested in forestry over the past three decades are now turning an old rural saying on its head.

Forestry: Money really does grow on trees

“Money does not grow on trees” was an oft repeated comment, but it is currently being reversed by those who invested in plantations all those years ago.

It is now more a case of “trees growing on money” as the forests that were planted in the 1990s are coming on the market.

Annual tax-free forest premiums initially payable for 20 years was the main driver of forest planting by private owners, particularly farmers.

These premiums began in 1993 with the result that many of the forests established in the 1990s are now exiting payments.

This has led to an increase in plantation sales and in a growing demand for information by investors on what is on the market.

According to Teagasc research, there are about 500,000 hectares of marginal land with significant potential for forestry.

However, sourcing these assets is a time consuming process.

That has led to an innovative decision by Forestry Services Ltd to provide a seamless path to the market.

The Co Kilkenny-based private company specialises in providing forestry services to all woodland owners and persons considering forestry.

It has a team of 12 foresters countrywide backed up by three office personnel. During the peak season, indirect employment rises to around 140 persons.

They are involved in planting new forests, maintaining existing ones, constructing roads and harvesting timber.

The company recently launched a dedicated website to service the gap it has identified by providing a single source of information on the market and the prices being achieved.

Dedicated website is the only dedicated website in Ireland available to all auctioneers to advertise existing forestry assets and land suitable for forestry.

Formed in 1985, the company won a Sunday Business Post National Agribusiness Award last year in the forestry category. Paddy Bruton, managing director, said that in the late 1980s and early 1990s 12,000 to 20,000 hectares were planted each year.

“Now thinning of those forests is required. The yield from the material removed is significant and sold to the sawmilling and biomass industry, among others, leading to profits for the landowner,” said Paddy.

We take care of everything from the thinning process to the actual marketing stage. We ensure the entire process is seamless for the forest owner,” he said.

Paddy Bruton said he is not surprised by the increased investor appetite that has become evident for forestry assets.

“The combination of value in a naturally growing commodity and the security of ownership of the under-lying land provides investors with a low-risk asset providing long-term capital appreciation in a sustainable and tax-efficient manner.

“The removal of forestry from the high-income earners restriction in the most recent budget is further evidence of the Government’s commitment to forestry.

“In this regard, income from the occupation of woodlands in the state, managed on a commercial basis and with a view to the realisation of profits, is exempt from income taxes for individuals and companies regardless of their residence or domicile,” he said.

European Parliament member for Ireland South Sean Kelly, who launched the website, in Dungarvan, Co Waterford, said forestry and the timber industry has been very much an under developed sector in Ireland.

He described the website as an ideal vehicle to help to promote and co-ordinate investors, farmers, auctioneers and all involved in the sector.

Economist Jim Power, speaking at the launch, said investment options are not at all clear or straightforward at the moment.

And that is due to an environment of historically low interest rates and bond yields, volatile and nervous equity markets as well as changing property markets.

“For any investor, diversification is key and in that context, forestry can play a very valuable role. This website will make a very valuable contribution to investors interested in sourcing this investment option,” he said.

A recent report by the Society of Chartered Surveyors Ireland found the average price per hectare for forestry land was €9,838 in 2015, an increase of 5% over 2014 prices.

Prices were found to fluctuate between €6,200/ha and €12,000/ha.

The same report highlighted the importance of forestry to the economy, contributing €2.3bn annually. Some 75% of the forest area is less than 30 years old.

There are 731,650ha of forestry in Ireland, with 46% of it in private ownership. Co Wicklow is the county with the highest percentage of forest cover (18%) while Cork has the largest (85,619ha).

According to the charter, there has been significant growth in private ownership of forestry over the last three decades.

This has been largely driven by a combination of demand from two sources with an interest in developing forestry.

These comprised a demand by Irish farmers for small holdings, incentivised through the availability of grants and premiums.

And it also consisted, particularly in recent years, of a demand from institutional investors and international investment funds for larger holdings as well as forestry portfolios.

Despite the relatively low proportion of land covered by forests in Ireland compared to other European countries, afforestation rates remain strong and this is being driven mainly by growth in private forestry holdings.

The sector need to keep pace with the growing demand for its products from timber processors and sawmills, which are continuing to expand their export markets.

Tadhg Dooley, Forestry Services, said that as trees grow they increase in size (diameter) and the value of their end-uses also rises.

These end-uses range from wood energy and wood- based panels through to pallets, packaging, garden furniture and construction sawnwood.

The outlook for timber production is regarded as excellent with ideal soil conditions.

High rainfall and a mild climate coupled with a low incidence of environmental pollution combine to give the country the highest growth rates for forests in Europe.

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