Timber option can stack up to maximise farm potential

Date Posted: 14.05.2014

Forestry Services Limited outline how farmers willing to invest in forestry look set to boost their returns compared to many traditional drystock enterprises.

Farmers willing to invest in forestry look set to boost their returns compared to many traditional drystock enterprises

FARMERS looking to maximise the potential of their farms should consider planting a portion of their holdings in forestry. This is particularly true for farmers whose holdings are predominantly or partly comprised of marginal land, but it also applies to those farming 'good' land.

The latest Teagasc e-Profit Monitor Analysis for Drystock Farms had some interesting information for beef and sheep farmers. Compared to beef and sheep operations, forestry farms retained 100pc of their premia and SFP.

Some key points from the Teagasc analysis were:

  • The average net margin per suckler cow was negative at -€85 in 2012
  • The bottom third of suckling to beef farms spent one third of their Single Farm Payment on beef production
  • The average net margin for cattle finishing enterprises was negative at -€50
  • The bottom third of lowland sheep farms lost an average of €29/ewe; for hill sheep farms the figure was -€2/ewe

Forestry outlook

Irish timber products are performing well in export markets. In 2012, 78pc of timber products produced here were exported.

Current estimates indicate that – at today's harvesting rates – European supply will only meet 55pc of the European timber industry's requirements.

This represents a massive opportunity for Irish farmers and landowners. Some points to consider are:

  • We can grow timber faster in Ireland than any other EU country. The productive potential of forestry is measured in terms of its yield class (YC).
    On grass rush type lowland, one could expect to grow Sitka spruce to YC 24. Yield Classes of the order of 6 to 12 are normal across the rest of Europe. We have a natural competitive advantage in the growing of timber.
  • The average forest cover across EU countries is 37pc. In Ireland it is 10pc, one of the lowest forest covers in Europe.
  • There is currently a deficit of roundwood in Ireland. Approximately 500,000 tonnes of roundwood is imported annually.
    The most recent Council for Forest Research and Development (COFORD) timber forecast for the island of Ireland projected a supply/demand deficit by 2020 of almost 1.6 million cubic meters per annum, with demand far outstripping supply. (see graph left).

Forestry Grant and Premium Incentives for landowners

The Forest Service of the Department of Agriculture, Food and the Marine incentivises the planting of land through afforestation grants and annual premiums.

These are determined by land type and tree species.

The afforestation grant is designed to cover the full costs of establishing and maintaining a plantation until the free growth stage is achieved.

The forest premium provides for two rates of payment – the farmer rate payable for 20 years and the non-farmer rate payable for 15 years. Income and tax-free premium payments are detailed in Table 2.

The Agricultural Consultants Association (ACA) 2014 Farmers Handbook outlines the projected returns from forestry.

The returns detailed are typical of a 14-hectare plantation established on low lying grass rush type land, growing Sitka Spruce Y.C 24 with 10pc other species and 10pc broadleaves planted.

These figures indicate that forest owners have an opportunity denied to beef, sheep, tillage and dairy farmers: they can let their crops continue to grow until market conditions are optimum to maximise earnings from their crops.

Single Farm Payment

Since 2009, the payment of both the forest premium and the single farm payment (SFP) are allowable on the same land.

The Department confirmed in February that this arrangement will continue under the 2014 – 2020 forestry programme.

An important point here is that farmers do not need to keep animals to secure their SFP entitlements. The only requirement is to maintain the land in good agricultural and environmental condition.

The details on farm payments under the new Basic Payment Scheme (BPS) are becoming clearer.

The ACA have developed a calculator which helps in calculating BPS payments.

Table 5 details the estimated payments from 2015-2019 for a farmer who had an entitlement value of €390/ha in 2013 for 20 hectares.

This reduction in payments is stark. Beef and sheep farmers should consider planting some forestry to secure maximum direct payments.

Forestry and Taxation

  • Income Tax – All profits from forestry including grants, premiums and timber sales are exempt from income tax subject to a restriction.
  • PRSI and USC – All premiums and profits are liable.
  • Capital Gains Tax (CGT) – Income from sales of standing trees are exempt but CGT applies to land sales.
  • Stamp Duty – Forestry land sales are subject to Stamp Duty on the land value only.
  • Gift/Inheritance Tax (CAT) – Inherited or gifted woodlands are liable to CAT but are eligible for Agricultural Relief.

Who is planting land?

The recent Teagasc National Farm Survey found that 9pc of farmers surveyed have forests.

So why don't more farmers engage in forestry? A recent UCD study examined farmers' attitudes to afforestation.

The study found that while financial incentives and the potential income from forestry are an integral part of a farmer's decision to plant or not, the decision is also influenced by the following factors:

  • Best use of "good" land. The belief exists that "good" land should not be planted even if it returns a higher income.
  • Preference for a farming lifestyle
  • Control over land
  • Continuing a family farm tradition
  • Meeting a challenge
  • Pride of land ownership

Increasing afforestation levels in this country requires a change of mindset. Farmers need to appreciate that forestry is a farm enterprise, like any other.

Almost 19,000 farmers have planted some land since 1989 – our experience at Forestry Services Ltd is that over 95pc of farmers are happy with their decision. Contrast this with the disappointment farmers experience when reclaimed marginal land reverts to rushes.

A bad experience with reclaiming can also make farmers reluctant to plant forestry.

Our message is forestry on marginal land combined with reseeding quality land generates a better financial return – especially as the forestry premium can offset the costs of reseeding better quality land.

More than 10pc of Ireland is under forest. The Government target for afforestation is 14,700 hectares per annum for 18pc forest cover by 2046. Achieving this target requires the afforestation of another 435,000 hectares.

Previous reports have highlighted over one million hectares of marginal land deemed more suitable for forestry than any other farming system.

Farmers need to utilise every acre and this should include considering planting forestry, particularly on marginal land. Financial results will follow correct farm level decisions.

Paddy Bruton is Managing Director of Forestry Services Ltd and a partner in Cillin Farm Advisory Group. For further information see www.farmadvice.ie and www.forestryservices.ie


source: Indo Farming


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