The Climate of Forestry - by Paddy Bruton

Date Posted: 06.05.2016

by Paddy Bruton, Forestry Services Limited  -  ICMSA newsletter – Irish Dairy Digest 2016

Land that is marginal for farming is generally ideal for forestry. Low-lying wet soil types, with a grass and rush type vegetation typically results in a short grazing season meaning such land is of reduced value to intensive livestock and dairy production. A farm level decision to consider forestry for such areas usually takes the following factors into account:

  1. Planted land remains eligible for the Basic Payment Scheme;
  2. Afforestation grants cover the full cost of establishing and maintaining plantations for the first four years. The crop is normally in ‘free growth’ at this stage. The operations provided for in the afforestation grant are detailed in Table 1;
  3. Forest premiums are payable to the landowner for 15 years with the rate dependent on the type of land and the species planted. Such premiums are income tax-free. The rates and duration of premium payments are detailed in Table 2;
  4. With growth rates of certain species more than double those achievable in other European countries, Ireland has a strong competitive advantage in the growing of wood fibre, yet we have one of the lowest forest covers in Europe;
  5. There is currently a deficit of timber in Ireland, which is resulting in the importation of approximately 500,000 tonnes of timber annually;
  6. The projected supply/demand deficit of timber by 2020, to satisfy the sawmilling and biomass industries in Ireland, is almost 1.6 million tonnes per annum, with demand far outstripping supply;
  7. Forestry income is not included in the high earners income tax restriction. This means all timber sales are income tax free. Projected returns from a Sitka spruce crop are detailed in Table 3.
  8. Timber is a commodity that can be ‘warehoused’ indefinitely by simply not harvesting. This enables the timing of harvests to market conditions.

Climate Change
The recent COP21 climate change conference is Paris is likely to lead to increased integration of forestry into traditional farming systems, particularly the dairy and beef sectors. The agriculture sector accounted for 32.6pc of Ireland's total greenhouse gas emissions in 2013. Forestry removes CO2 from the atmosphere and subsequently provides raw material for construction and fuel for renewable energy generation. The key to mitigating Ireland’s agricultural emissions lie both in increased on-farm efficiency and forestry expansion to sequester emissions from the air. This is a more palatable option than a carbon tax on agricultural produce which has the potential to decimate the beef sector.

Additional Benefits
Many farmers who have planted marginal land comment on the effect the trees have on drying out the adjacent unplanted ground. Tree cover greatly increases the rate at which water is absorbed by the soil, with a recent British study showing that water infiltrates into the soil under the trees at 67 times the rate at which it infiltrates into soil under permanent pasture. This consequential benefit of planting on the remaining farm is immediate with shelter for livestock also of benefit as the forest matures.

Succession Planning
Agricultural relief is available for Gift and Inheritance Tax since the introduction of Capital Acquisitions Tax in 1976. The relief operates by reducing the market value of agricultural property by 90pc so that gift or inheritance tax is calculated on an amount – known as ‘agricultural value’ – which is substantially less than the market value. The relief applies provided the beneficiary qualifies as a ‘farmer’. A qualifying farmer is any individual of whom at least 80pc of his or her assets, after taking a gift or inheritance, consists of agricultural property on the valuation date of the gift or the inheritance.

Forestry is accepted as an agricultural asset for the purposes of calculating agricultural relief.

Beneficiaries of forestry assets do not necessarily have to satisfy the normal working time test to enable qualification, which is a significant advantage for beneficiaries of forestry assets.

A recent trend for those planning for succession with significant deposits or shared assets, is converting such assets to forestry assets to ensure qualification for agricultural relief. The fact that forestry is a real land-based asset, the value of which does not vary greatly over time, combined with the price of timber increasing both nationally and internationally, lends credence to the view of forestry as a low-risk investment with a solid yield.

Solid advice for every farmer is to fully utilise every acre on the farm, apply correct husbandry to land that should be farmed and consider forestry, particularly on marginal land or land requiring reclamation. Financial results will follow correct farm-level decisions.

Paddy Bruton is Managing Director of Forestry Services Ltd.  Agribusiness award winners 2015.

Table 1.  Establishment & Maintenance operations

Establishment Phase (Year 1)

Maintenance Phase (year 2 to 4)

Fencing

Replacing failed plants

Drainage

Vegetation control

Ground preparation

Shaping broadleaves

Supply of planting stock

Fertilisation

Planting

Fence repairs

Vegetation control

Management (including all paperwork)

Fertilisation

 

Management (including all paperwork)

 

 

Table 2.  Rates & Duration of Income Tax-Free forest premiums

Grant/Premium Category (GPC)

Annual Premium €/Ha

Duration (no of years)

GPC 1 – Unenclosed

185

15

GPC 2 – Sitka spruce/LP Non diverse

440

15

GPC 3 – 10% Diverse

510

15

GPC 4 – Diverse

560

15

GPC 5 – Broadleaf

575

15

GPC 6 – Oak

615

15

GPC 7 – Beech

615

15

GPC 8 – Alder

575

15

GPC 9 – Native Woodland Establishment – (scenario 1-4)

635

15

GPC 10 – Native Woodland Establishment – (scenario 4)

635

15

GPC 11 – Agro – forestry

260

5

GPC 12 – Forestry for Fibre

180

10

 

Table 3.  Projected returns from forestry, GPC 3, YC 24.

Timeframe/Operation

Returns €/Ha

Year 0 to year 15 : Annual premium @€510/ha/yr

7,650

Year 15 : 1st Thinning

    450

Year 20: 2nd Thinnng

    500

Year 25: 3rd Thinning

 2,500

Year 30 : 4th Thinning

 2,600

Year 35 : 5th Thinning

 2,800

Year 37: Clearfell

25,000

Total

41,500

“As a dairy farmer, I had little interest in forestry until I purchased land with milk quota in the mid-1990s. Both the milk quota and the forestry have proven good investments. I engaged Forestry Services Ltd to secure the necessary felling licences, construct forest roads and thin the plantations in 2008. The plantations have been second thinned and I am happy with the work that was done and the returns I received from the thinning. I am looking forward to the clear-fell and my only regret is that I haven’t got more forestry.”
Tadhg O’Meara, Chantersland, Emly, Co Tipperary.
 


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I planted almost 100 acres in 2000 with Forestry Services Ltd. The plantation is growing very well. A forest road will be constructed in 2015 with thinning scheduled for 2016. Simply, Paddy & the rest of the lads at Forestry Services do what they say

Pat Costello, Milestone, Co. Tipperary
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