The Farm Forest

The following comments are often heard:

“No matter how hard I tried those fields were always reverting back to rushes”,

“That part of my farm was producing very little”,

“The land was not worth reclaiming, and I am better off with forestry”,

“I could get no help with farming for love or money”,

“Labour is very scarce around here”,

“Young people are no longer interested in farming” ,

“I am better off planting it than having the hassle of letting it for grazing for little or nothing”.

While we all recognise that a growing timber crop is a valuable appreciating asset, it is also true that one must wait for at least 35 years when the crop is clearfelled before realising most of the value of this asset. The average annual appreciation in the value of timber is estimated to be €250+ per hectare per year accumulating to over €12,500 at clearfell for quality timber at today’s prices. When comparing forestry with farming we must look at annual cash flow or annual income streams from both activities. What does the change in land use or the switch in investment from livestock and crops to growing trees mean in terms of annual income?

Livestock and crops provide an annual income by way of money in the post and a possible net profit (or loss) on sales less purchases, while farm forestry provides an annual tax-free income from the forest premium (money in the post) less small amounts for insurance and management.

How will total family farm income be affected by the change in land-use to forestry ?

The total family farm income is the money available for family living expenses and farm investment, etc. after all costs are deducted from total farm sales and EU payments.

• In family farm income terms, about one third of all farmers earned less than €300 per hectare in recent years.
  
• Over 50%, or 30,000, of the mainly dry stock farmers had family farm incomes per hectare of less than €300 during the same period.
  
• If a lower figure of €200 per hectare is chosen as the cut off point the total number of farmers earning very low incomes per hectare is also large at 20,000 approximately.

Farmers who afforest land currently receive an annual premium payment of €400 per hectare approximately for the 20% diverse conifer category and up to €500 per hectare for the oak/beech category. The current annual forestry premium payments at the farmer rate are taken as being broadly in line with a family farm income per hectare of €400.
Agriculture is generating family farm incomes per hectare well below the €400 mark for a huge number of farmers mainly involved in drystock production.

Farmers with low annual family farm incomes per hectare should consider switching some land to forestry as a means of boosting total family farm income.

Income per hectare comparisons between agriculture and forestry provide a useful guide when deciding on a change in land-use to forestry.

Almost 50,000 drystock farmers are unable to cover total costs of production from the market place and are forced to rely on EU transfer payments to pay for some of these costs. In the absence of EU payments many farmers are showing losses on returns from the marketplace. After the implementation of the current CAP reform measures, when EU payments are no longer linked to production, the production of quality beef and other products will be all-important. Then if product prices do not deliver a positive return from the market place agricultural production will fall. More farmers will consider a switch to forestry if the forestry premium payment per hectare is greater than all other EU payments plus the return from the market place.

The EU payments are:

• the area-based compensatory allowance,
  
• the REPS payment and
  
• the new per-hectare entitlement payment post the implementation of the recent CAP reform measures.

There are also social welfare, property value, administrative, legal, planning, farm size and outside the farm gate economic factors which may impact on your decision to plant some land.

Where is the Forestry Option Attractive?

Forestry opportunities are most likely to arise on farms where:

Afforestation results in an increase in total household income;

Low family farm income per hectare is being generated on large farms with low livestock densities;

Farms are operated by part-time farmers who require a high financial return for their labour input;

Farmer or spouse is earning taxable income;

The economic feasibility of land drainage and reclamation for agricultural purposes is doubtful;

The farmer has difficulty in managing reclaimed land;

There are easily accessible areas of marginal land suitable for tree growth;

Some of the labour required can be provided by the farmer and his family;

Farms are fragmented with land some distance from the main farmyard;

Land is being let for grazing under the 11 month system;

The farmer is considering joining the Scheme of Early Retirement from Farming;

Groups of farmers can organise to afforest adjoining parts of their farms on a co-operative basis.

The key questions are:

• Will total household income increase on your farm after a change in land use to forestry?

• Will the annual forestry premium payment per hectare be greater than the sum of all the EU per hectare based payments (plus/minus the return from the market place)?

• What is the optimum mix of agriculture and forestry on your farm which will maximise total household income?

Have all the options analysed before deciding to plant.

Be sure to contact Teagasc first.