2017-01-04   facebooktwitterrss

Time To Branch Out Into Trees In 2017

Farmers are no strangers to long-term business planning, so it is perhaps surprising that more of them are not grasping the opportunity that forestry can offer.

Mike Tustin, a chartered forester with John Clegg & Co, says the government has promised that agricultural support payments will continue unchanged until 2020, but there is far less certainty about what will happen beyond that.

Mike Tustin

Mike Tustin

“In the post-Brexit era, landowners will be wise to seek ways to reduce reliance on support payments and spread risk across their business. It will become more important than ever for producers to make the best commercial decisions about the use of all their assets - including the land,” he says.

“Over recent decades, much has written about diversifying into areas such as renewable energy, tourism, property and selling direct to the consumer.

“However, the opportunities presented by planting trees – or by starting to actively manage existing woodland on farms – have received far less attention.”

Mr Tustin says that forestry is a simple-to-manage business that generates good returns, can integrate well with existing enterprises, utilises land that may be less suited to food production and brings benefits in terms of wildlife and biodiversity.

“The UK Forest Market Report, a joint initiative between John Clegg & Co and Tillhill Forestry, sets out an attractive business case for farmers to consider taking more of an interest in forestry.

“Everyone knows about the dramatic growth in farmland prices over the past decade. However, forestry land has actually been the top performing asset type in the UK over the last 15 years, generating returns of well over 10% a year.

“Over the past decade, capital growth has been just shy of 20% a year, with forestry land values rising from £2,000/ha to £8,000ha.”

Mr Tustin explains the significant improvement in forestry returns has been driven by increased demand for timber.

“There has been resurgence in the market for energy wood, thanks to the boom in biomass boilers and woodburners, along with the introduction of the Renewable Heat Incentive. It means that woodlands that were not worth maintaining 10 years ago are now looking financially attractive.

“It is estimated that there is more than 1m ha of trees currently undermanaged, predominantly in the south east of England. Bringing these back into production could produce an income stream for landowners relatively quickly.”

Looking to the future, forestry market fundamentals remain strong too.

“The weaker pound has already pushed timber prices up 10% since the EU referendum vote. If, as a result of Brexit, this situation is sustained it could mean greater demand for home-grown timber as imported product will look expensive.

“A lack of recent planting also means that it is also predicted there will a shortage of home grown timber beginning to impact in around 20 years’ time. Investors planting productive new forests now will be in an excellent position to benefit from this.

“The arguments for farmers to consider setting aside some of their more marginal land for forestry also include the favourable tax treatment of commercial forests and the availability of grant funding for establishing woodland.”

Schemes to encourage tree planting are in place across the UK, and while they do suffer from being overly-bureaucratic, they are worth exploring, says Mr Tustin.

“However grants should only be used if they offer financial support to the objectives in a landowner’s own mind. Blind following of grant aid does lead to a less productive woodland.”

Defra has just announced the re-opening of the Woodland Creation Grant which offers funding for new woodland that can be shown to provide public benefits. The government and forestry sectors have a shared ambition to achieve 12% woodland cover in England by 2060.

Meanwhile, in Scotland ministers have set an ambitious target of 10,000ha of new plantings each year and have the Forestry Grant Scheme in place to achieve this.

“Different farmers will have different objectives when it comes to what species they choose to plant,” says Mr Tustin. “Plantations which are predominantly conifers offer the prospect of an income stream after just 20 years, but they are not the only option. The right mix of trees will produce a credible and positive return.

“It is also perhaps time we stopped thinking of farming and forestry as being two separate land uses with competing priorities.

“A number of UK farmers are already experimenting with growing trees in combination with crops, or using trees to improve their animal husbandry.

“For example, the effective use of trees for shelter belts, can improve animal welfare and reduce costs by extending the grazing season or reducing the amount of supplementary feed required.

“Now feels like a good time for landowners to take more of an interest in what woodland can offer and examine whether they have parcels of land producing unreliable or non-existent returns from mainstream agricultural production which could be put to better use.

“Money may not grow on trees, but farmers should certainly look at forestry as part of a portfolio of enterprises that make up a sustainable farm business.”

John Clegg

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