The row centres on the sharing of profits from the forestry between the farmer who owns the land and the state-owned company.
Coillte management has argued that in the vast majority of cases, farmers receive between 45% and 60% of the net profit from timber sales after harvesting and marketing costs, depending how much of the profit is paid in advance. The Irish Farmers Journal has seen an example of a contract confirming this level of profit sharing.
Yet another type of contract also seen by the Irish Farmers Journal and analysed by a consultant assisting farmers present at a recent IFA public meeting appears to allocate the farmer only one third of profits.
The consultant estimated the money flows from this contract as follows:
Coillte guarantees the farmer a regular annual income for the duration of the contract – until the trees are clearfelled and up to a maximum of 40 years. This annuity starts at of €293/ha and is indexed on inflation, increasing every year, according to the CSO consumer price index. However, Coillte deducts the Government premium received by the farmer for the first 20 years, which covers the vast majority of the annuity. The consultant estimated that Coillte paid €3,000/ha to the farmer over these 20 years. From year 21, Coillte pays the annuity in full.Coillte is entitled to all profits from thinnings. The crop in this case can yield three thinnings, estimated by the consultant to be worth €5,000/ha.The contract allocates 99% of profits from final clearfell to Coillte and 1% to the farmer. The consultant said that this productive crop would be clearfelled after 30 years, with nearly all the estimated €24,700/ha profit going to Coillte.This leaves the farmer with a €6,950/ha share of profits, compared with €21,725 for Coillte, according to the consultant's calculations. He added that the farmer faced a legal replanting obligation estimated to cost more than €3,000/ha, leaving less than €4,000/ha in net disposable profit over 30 years. This doesn't include the Government premium.
The variations in the estimated profit shares from the two partnerships discussed above show the wide variety of contracts used by Coillte when entering agreements with 630 farmers over the 1993-2012 period.
The contract detailed by the consultant above essentially allocated Government premiums to Coillte. This contract was signed shortly after the scheme started, and later contracts appear to leave the benefit of the premiums to the farmer. This raises the issue of fair treatment between all partners.
One major issue is the complexity of the different contracts and the difficulty in establishing accurate estimates of what a farmer has been paid and remains owed. New annual financial statements promised by Coillte will need to address this.
Advance payments
Coillte has a point in saying that advance payments made earlier under certain contracts, such as the one detailed above, have more value than their strict euro figure. This money is being advanced up to 40 years before timber is sold, and is equivalent to a loan to the farmer that would normally attract interest. Inflation also means that the value of one euro paid to Coillte for timber at the end of the contract is lower than that of a euro paid to the farmer in year one.
However, the fact that Government premiums covered most advance payments in the case above for 20 years greatly reduced this financial cost for Coillte. Such complex contracts make it very difficult to ascertain the real value of each partner's share of profit.
Ongoing talks between the IFA and Coillte should determine whether certain farmers signed less-favourable contracts than others, whether this should be redressed, and make it clear to all involved where they stand financially going forward.
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'We haven't missed payments' – Coillte
The row centres on the sharing of profits from the forestry between the farmer who owns the land and the state-owned company.
Coillte management has argued that in the vast majority of cases, farmers receive between 45% and 60% of the net profit from timber sales after harvesting and marketing costs, depending how much of the profit is paid in advance. The Irish Farmers Journal has seen an example of a contract confirming this level of profit sharing.
Yet another type of contract also seen by the Irish Farmers Journal and analysed by a consultant assisting farmers present at a recent IFA public meeting appears to allocate the farmer only one third of profits.
The consultant estimated the money flows from this contract as follows:
Coillte guarantees the farmer a regular annual income for the duration of the contract – until the trees are clearfelled and up to a maximum of 40 years. This annuity starts at of €293/ha and is indexed on inflation, increasing every year, according to the CSO consumer price index. However, Coillte deducts the Government premium received by the farmer for the first 20 years, which covers the vast majority of the annuity. The consultant estimated that Coillte paid €3,000/ha to the farmer over these 20 years. From year 21, Coillte pays the annuity in full.Coillte is entitled to all profits from thinnings. The crop in this case can yield three thinnings, estimated by the consultant to be worth €5,000/ha.The contract allocates 99% of profits from final clearfell to Coillte and 1% to the farmer. The consultant said that this productive crop would be clearfelled after 30 years, with nearly all the estimated €24,700/ha profit going to Coillte.This leaves the farmer with a €6,950/ha share of profits, compared with €21,725 for Coillte, according to the consultant's calculations. He added that the farmer faced a legal replanting obligation estimated to cost more than €3,000/ha, leaving less than €4,000/ha in net disposable profit over 30 years. This doesn't include the Government premium.
The variations in the estimated profit shares from the two partnerships discussed above show the wide variety of contracts used by Coillte when entering agreements with 630 farmers over the 1993-2012 period.
The contract detailed by the consultant above essentially allocated Government premiums to Coillte. This contract was signed shortly after the scheme started, and later contracts appear to leave the benefit of the premiums to the farmer. This raises the issue of fair treatment between all partners.
One major issue is the complexity of the different contracts and the difficulty in establishing accurate estimates of what a farmer has been paid and remains owed. New annual financial statements promised by Coillte will need to address this.
Advance payments
Coillte has a point in saying that advance payments made earlier under certain contracts, such as the one detailed above, have more value than their strict euro figure. This money is being advanced up to 40 years before timber is sold, and is equivalent to a loan to the farmer that would normally attract interest. Inflation also means that the value of one euro paid to Coillte for timber at the end of the contract is lower than that of a euro paid to the farmer in year one.
However, the fact that Government premiums covered most advance payments in the case above for 20 years greatly reduced this financial cost for Coillte. Such complex contracts make it very difficult to ascertain the real value of each partner's share of profit.
Ongoing talks between the IFA and Coillte should determine whether certain farmers signed less-favourable contracts than others, whether this should be redressed, and make it clear to all involved where they stand financially going forward.
Read more
'We haven't missed payments' – Coillte
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