How forestry pays dividends in both the long and short term

Diarmuid Cohalan reports on why industry experts say that forestry plantation makes great financial sense.
How forestry pays dividends in both the long and short term

Putting a value on any type of property is usually a daunting task. Forestry plantations in particular can be even more difficult, given the large number of variables that need to be taken into consideration when making a valuation of a mature forestry crop.

Generally speaking, forestry in Ireland takes between 30 to 40 years from the time of planting to be ready for harvesting, with variations due to species, yield class, soil type, altitude exposure, and general management.

This means that high yield-class Sitka spruce plantations that were planted in the 1980s are now approaching clear-felling stage.

This creates a new challenge for forestry owners who must now focus their attention on the realisable value of their forestry crop.

For most forestry owners this is a challenge they have never faced before and due to the long forestry growing period is only likely to happen once in their lifetime.

As a consequence, it is vital that forestry owners in their own interest fully engage with the best independent advice that’s available to them.

Conventional farming, unlike forestry, involves growing a crop annually, which allows the farmer to avail of past experience in realising the best use and return for the crop.

With private forestry, there is no existing precedent to assist the grower to determine the precise value of the crop, which means the owner has only one opportunity in acquiring the maximum value for a crop that has taken between 30 to 40 years to grow.

For decades forestry growing in Ireland was the sole prerogative of Coillte, who bought marginal land from farmers and planted it with conifer trees.

Private Forestry ownership in Ireland is a relatively new phenomenon that only began in the mid-to-late 1980s as a result of planting incentives to farmers and land owners, aimed at encouraging private forestry growing in Ireland.

For the first time, the State, with financial assistance from the European Union, introduced forestry grant schemes incentivising afforestation for private landowners.

As a result, private afforestation increased rapidly, peaking in 1995, when 17,353 hectares were planted by landowners in a single year.

The MacSharry CAP reform measures in 1994 had given significant incentives to promote forestry planting, which was also intended to promote alternative land use in order to reduce surplus food production.

These incentives succeeded in increasing the amount of privately owned forestry to almost 336,000 hectares amounting to 46% of the total forestry area in Ireland by 2014.

The fact that private forestry is still a recent occurrence means there is little independent research done on the actual value of forestry plantations in Ireland.

However, a study by the Society of Charter Surveyors Ireland (SCSI) entitled The Irish Forestry Land Market offers some information about the actual sale prices of forestry plantations (including land)

The SCSI acknowledges that ‘‘the variability in values and the relatively low sample size used should be taken into consideration when analysing the estimated annual average price per hectare’’

The SCSI survey is based on the actual sales of 88 forestry properties between and including 2011 and 2015.

The average yield class for all properties in the study is 22 YC and the average area size is 19 hectares, with the average age of planted forests being 16 years. All properties comprise of either conifers (predominantly Sitka spruce) or a mix of both conifers and broadleaves.

However, the sample of 88 sale transactions also included 18 transactions of bare land that was bought specifically for planting and are included in the overall average price of €9,838 per hectare for 2015. This would tend to distort and lower the average price paid for planted land.

The SCSI survey found the size of plantations influenced values, with larger sized plantations commanding higher prices, and states that location and access to plantations where important factors that affected values.

Given that a lot of forestry is planted in areas that are serviced only by poor grade byroads with access to the plantations being difficult, this was identified in the study as a factor that has a negative effect on values.

It also found that long distance to potential log markets or sawmills had a negative influence in forestry plantation prices and emphasises that “the majority of forestry sites coming to the market in a given year are small holdings, usually being sold through probate, or as a result of forced sales or family separation”.

The SCSI survey concluded that the forestry market in Ireland was 12% lower than the UK, but states that the Irish market has matured in recent years and forestry is now viewed by many as a creditable investment alternative.

The average age of 16 years for the plantations surveyed, ought to be an important consideration for forestry growers, as it is from 20 years on that the timber value of a forestry crop increase, which according to IFA forestry chairman, Pat Collins, could amount to as much as €1,000 per hectare per year.

Landowners can leave their trees sit until market price is right

The SCSI survey offers some assistance to a limited number of growers who are obliged to sell their semi mature plantations and land.

In the meantime the clock is ticking for many other growers who want to harvest their crop and retain the land — especially if their forestry crop was planted in the mid-1980s, is high yield class, and is now getting close to maturity.

The crucial question for these growers is just how much is their forestry crop worth and how to proceed to get the best realisable return for their original investment.

At the Teagasc “Talking Timber” event at Tralee back in September, Sean Sheridan, Glennon Brothers Sawmills, gave an important presentation on saw log quality in relation to forestry values at harvesting.

This included a display of eight different saw log types. These categories consisted of poor quality, medium quality, good and excellent quality logs, which also included the approximate value of each log as well as the effect that a percentage share of each log type would have on the overall value of plantations at clear-felling.

The Teagasc conference also dealt with the advantages of thinning as a means of maximising the overall value of a forestry crop at harvesting stage.

Tom Houlihan, forestry advisor with Teagasc, strongly advised in favour of thinning where possible — as a means of optimising saw log quality and acquiring the maximum return at clear-felling stage.

At the same event, the chairman of IFA forestry committee, Pat Collins stated that a good conifer crop at clear-felling stage could be worth €25,000 per hectare and advised growers not to be influenced by people with a vested interest in talking down the value of forestry.

Mr Collins has previously expressed concern that some forestry owners are choosing to sell their plantations when the premiums end.

Mr Collins advises growers to be aware of the valuable potential earnings that can be achieved from timber sales at clear-fell stage.

Mr Collins advises: “This is especially relevant with good plantations that have the potential to earn up to €25,000 per hectare — which is double the current market value for semi-mature plantations that are in some instances within ten years of harvesting — while still retaining the land.’’

Mr Collins added: “In a productive, well-managed plantation of Sitka spruce, the timber crop value is increasing by approximately €1,000 per hectare per year from 20 years onwards.”

In the end the grower will have to decide when it is right to harvest his/her forestry crop — depending largely upon market prices on offer for saw-logs and having the services of a good reliable harvesting contractor.

However, the grower does have one valuable fallback position — unlike conventional farm crops, a forestry crop really does not have to be clear-felled in haste.

In a year of bad prices, it can, if necessary, be allowed to grow on for another year or two until market prices improve.

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