September 26, 2016
Teagasc Research confirms attractive returns from Forestry over other Farming Activity
A recently published paper by Teagasc has confirmed that the economic return from fast growing conifer such as Sitka spruce will yield a rate which is comparable to tillage and more favourable than cattle or sheep rearing activities.
Forestry requires a long-term approach with Sitka spruce crop rotations on good quality land typically growing for 30 years yielding an annual forest premium of €510/ha (tax free) for the first 15 years of the forest rotation.
The Teagasc report entitled “Long and short term perspectives on the returns from the afforestation of agricultural land” written by Mary Ryan, Cathal O’Donoghue, & Anne Kinsella, states that landowners who plant agricultural land incur an opportunity cost in relation to the loss of agricultural income over the life-time of the forest, on the planted land. The higher the agricultural income from the land, the lower is the net income from forestry over time. On the other hand, farmers with lower agricultural incomes stand to gain more from planting than they lose from giving up the agricultural income on that land.
The report also states that one of the advantages of choosing forestry is that long term timber prices have kept pace with inflation over time and unlike in the farming situation, it is possible to capitalise on high timber prices by harvesting a year or two earlier or later. Fluctuations in farm income over time (e.g. from the bad weather year in 2009 to high market prices in 2011), affect the opportunity cost of planting. Policy changes also affect the opportunity cost as farmers stood to lose livestock subsidies in the post MacSharry era, whereas farmers planting in the post Single Farm Payment (SFP) era can retain their direct payments. Thus, farmers who are considering forestry should look at the longer term financial and physical components of the agricultural enterprise in conjunction with the long term returns from the proposed forest enterprise.
The report concludes that in livestock systems with lower opportunity costs, the smoothed annual net gain over the course of a forest rotation is strongly positive. The highest gains are evident on marginal land at yield classes 18 and 20. Additionally, taking a long-term perspective, cattle and sheep farmers stand to gain between €100 and €300 per hectare on average for each year of the forest rotation.
The Annual Forest premium rate and Teagasc’s National Farm Survey 2015
- The annual premium for forestry (GPC 3) is €510/ha for 15 years (source – Forestry Programme 2014 -2020);
- The Average Family Farm Income/ha, (gross output including subsidies less total costs), is;
Source: Hennessy and Moran (2016) Teagasc National Farm Survey Results 2015
Benefits of Forestry
- 100% of the cost of establishing a new forest is covered by grant aid;
- An annual premium of up to €257 per acre (€635 per hectare, GPC 9&10) is payable for 15 years;
- Forestry is compatible with other agriculture schemes, including the Basic Payment Scheme and GLAS;