Forest size and profitability

The term ‘alternative’ enterprise, which is often used in relation to forestry, conveys an image of marginal activity which should be tolerated in the absence of anything better. This seriously underrates the value of forestry as the engine for development of many rural communities.

– Martin Lowery (1990)

Recent forestry programmes in Ireland promote small-scale afforestation as an alternative land use. They provide myriad wood and non-wood benefits. From an economic perspective, forestry is viewed, at best, as a land use that is designed to supplement farm income.

This is reflected in the average forest size in Ireland which in the 10-year period 2013-2022 averaged 6.7ha. When Martin Lowery made his presentation at the 1990 RDS conference – The Right Trees in the Right Places – he was advocating that farmers should treat forestry as a viable land use in its own right rather than an alternative enterprise.

Since then, Teagasc studies illustrate that high yield forests – mainly commercial conifers – provide a higher annual income than all cattle rearing systems and 60% higher than sheep. As expected, it was one third the income of dairy but was only 19% below tillage. The average family farm income (FFI) for tillage was €76,000 in 2022, based on an average farm size of 70ha.

Forest sales

Based on a general comparison this would indicate that forestry could provide an average FFI income of €61,500, which is higher than the main income stream on most family farms.

However, making comparisons between tillage and forestry are unrealistic, as there are few farmers or other landowners with 70ha of forests in Ireland.

According to Forestry Statistics 2023, only 32% of the total afforested area (1980-2022) consists of plantations greater than 20ha. This poses the question: “what is the minimum forest size to provide a viable income from timber sales in the absence of revenue from non-wood goods and services such as ecosystem enhancement and carbon trading?”

It is worth looking at forest sales in Ireland and private forestry in other countries to gauge the optimum size of forestry as a viable commercial enterprise? Countries such as Sweden and Finland are good benchmarks as private forestry is the main land use in­come source.

When we contacted a number of forestry companies and estate agents during the compilation of the Irish Farmers Journal Agricultural Land Price Report 2023, they said that most investors were only interested in forests with a minimum of 10ha and preferably much more. The forests that generated greatest interest were mature or semi-mature commercial crops. These were mainly established from the 1990s up until 2012, which carry at least 90% productive conifers.

Forestry land sales provide a metric on what is a viable forest size. A 20ha forest with 90% commercial species provides the investor with an income from the 18ha of coniferous species.

Conversely, a 20ha forest established under the current programme carries only 13ha of productive forest as it has a mandatory requirement of 35% broadleaves and open biodiverse spaces. This is still a viable forest unit but a far less attractive proposition than heretofore. The increased premiums and 20 years of annual tax-free premiums provide a medium-term attractive income but a reduced long-term investment opportunity.

European forest sizes

“The average size of a private forest holding in the EU is about 13 ha,” according to the Confederation of European Forest Owners (DEPF). However, DEPF states that around two thirds of private owners have holdings of less than 3ha.

Private forest owners in Finland and Sweden treat forestry as a serious commercial land use, so it’s no surprise that they prefer larger holdings to ensure their forests are profitable.

Most of the Finnish forests belong to non-industrial private forest owners who retain 60% of the forests. “About 80% of domestic wood utilised by the forest industry comes from private forest owners in Finland,” maintains Metsäteollisuus – the Finnish Forest Industries Federation. “The average size of the forest holding is 30ha and the number of forest owners is approximately 620,000.”

In Sweden, the average forest size is 37ha, according to the Swedish Forest Agency. Like Finland, most forests are managed commercially. Sweden has 80.6% commercial conifers (40.3% mainly Norway spruce and 39.3% mainly Scots pine) with 12.4% birch and 8% other broadleaves.

Optimum forest size

While Scandinavian forest owners expect an economic return from their forests, most have secured forest certification which means they manage their forests according to the principles of sustainable forest management. However, financial objectives are central to sustainable management in Sweden and Finland, while the size of forests and marketing supports provide economies of scale in achieving a profitable private forestry sector.

Ireland’s fragmented forestry sector carries few of these advantages. The optimum forest size depends on the owner’s objectives. These vary considerably in a variety of schemes which cater for owners who wish to plant as little as 0.1ha under the Native Tree Area (NTA) scheme.

But there are owners who wish to establish and manage viable commercial crops that will provide the main – or only – source of revenue. They may be a minority in Ireland but there is evidence emerging of forest owners who have repeat planted to add to their original holdings. These are seeing the advantage of larger scale forests.

Sawmillers, forestry companies and farmers with forests are in broad agreement that a minimum of 10ha of a commercial crop is required to ensure the forest delivers a sustainable income as part of the farming enterprise. As forests can only carry 65% commercial species this means that a total forest area of 15ha is required to deliver a profitable holding.

A forest of this size can provide an income of €4,000 plus from thinnings and €200,000 plus from clearfells. Smaller lots can still deliver reasonable income but can become non-viable at less than 5ha. While forests can yield €500/ha from thinning, purchasers are unlikely to be interested in thinning small lots. For example it can cost €2,000 to transfer a harvester and forwarder to a harvesting site.

Forests provide a range of benefits, but if the main aim is achieve a viable income, then farmers should opt for larger lots and take their cue from the Finns and Swedes.

The latest Department dashboard forestry data shows a decrease for forestry licences issued in March for afforestation and felling while road licences hold up.

An average of eight afforestation licences were issued per week, down from nine in January and 10 in February. Total licences for the first three months amount to 945ha while 273ha were planted. In addition, 128 licences or 1,038ha have been approved under the previous forestry programme. “The programme is not working and urgently needs revision,” according to one forester.

Under the Native Tree Area (NTA) scheme there have been 148 approvals processed to date, representing 155ha.

Felling licences were well down to 314,000m3, compared with 2023 (888,000m3) and 2022 (786,000m3). Licences approved for forest roads amounted to 28km.

This brings the total road licences to 84km for the first three months, which is similar to 2022.

Approvals under the new Reconstitution of Ash Dieback (RAD) scheme “are continuing, with 492 approvals issued representing 1,944ha,” according to a Department spokesperson. As yet no compensation scheme has been announced for owners of diseased ash plantations.