Sitka spruce forest plantation can return up to €610 per hectare per year, in terms equivalent to gross profit margin, say Teagasc advisors.
They say you cannot directly compare potential forestry income with other farming enterprise incomes, but you can express the potential income from long-rotation forestry similarly to the annual income from traditional farming enterprises.
However, income from timber harvesting does not arrive on an annual basis.
One of the biggest issues for farm forest owners is that the harvest income arrives at periodic intervals, rather than every year.
Teagasc has developed the forest investment valuation estimator (FIVE) research tool, so that different forest crop rotations can be expressed on an annual per-hectare basis.
This presents the net present value (NPV) as a series of equal cash flows over the forest rotation length.
Advisors say this annual equivalent value (AEV) can be contrasted with the gross margin for other farming enterprises.
According to a report in Teagasc’s Todays Farm magazine, the AEV for Sitka spruce at yield class 24 could be as high as €610 per hectare; for Sitka spruce at yield class 16, it could be €415 per hectare.
The Teagasc advice to farmers considering forestry is to look beyond the annual premium (worth €510 per hectare in many cases).
There is also revenue from thinnings and clearfell.
Revenues vary according to prevailing timber prices, ground conditions, extraction distances and road access.
But poor management of the forest, and problems like wind damage can hit revenues.
AEV calculations are based on premium and timber sales revenues minus costs, including inspection paths, maintenance, insurance, roading and reforestation.
In addition, the Basic Payment Scheme entitlements attached to the land continue to be available on eligible afforested land.
According to the Todays Farm report, the best financial returns arise where forestry replaces cattle farming on land that is limited for agriculture due to poor drainage, but can produce Sitka spruce of at least yield class 18 — or where forestry replaces sheep on land that is very limited for agriculture, but can produce a forest crop of at least yield class 14.
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