Making Woodlands Pay Economic Resilience & Market Trends 2015 Graham Taylor MICFor Pryor and Rickett Silviculture
Economic Resilience A Definition for a Woodland A woodland property which has the ability to withstand multiple foreseen and unforeseen timber market and other external shocks that directly affect timber income and woodland expenditure whilst maintaining capital values and provide healthy overall returns to the woodland owner.
Economically Non Resilient (Weak ) Woodlands - Loss making - Stagnating growing stock - Increasing overhead costs or low productivity ratios - Declining woodland infrastructure - Resource under-utilization
Economically Non Resilient Woodlands Impacts & Consequences - Loss of confidence / interest by owner - Neglect / shut the gate - Increase in shade - Decrease in biodiversity - Reduced sporting opportunities and increased pheasant ill health - Declining woodland infrastructure - Reduction in capital value - Increase in deer numbers / browse line - Grey Squirrels abound - Inheritance tax relief under threat
Economic Resilience in Forestry Lesson 1 Grow the Right species and understand their silvicultural nature and their timber market characteristics
Trustees for the Beneficiaries of RS Tufty Woodlands 2014/15 Budget Income Timber Sales Cpt 9 Felling of Poplar 400 t chipwood/sawlog @ 35 /t = 14,000 100 t firewood @ 56 /t = 5,600 Grants WRG Cpt 9 1.4 ha 1,430 WPG Management Plan 1,000 Expenditure 22,030 Cpt 9 Harvesting 500 t mixed products @ 22 /t = 11,000 Machine haulage 280 Timber haulage 500 t mixed products @ 10 /t = 5,000 Cpt 9 Ground preparation 800 Restocking 4,405 Long Wood Spot spraying & Beat up 500 Gap up Christmas trees 150 Tree Safety works Category 1 1,135 Crown reduction of OK by house Category 2 do in 15/16 Professional fees Organisation, supervision and timber marketing 3,150 Production of management plan 1,000 27,420 Net Income -5,390
Income Timber Sales Trustees for the Beneficiaries of RS Tufty - Woodlands 2014/15 Budget Cpt 9 Felling of Oak 350 t sawlog @ 130 /t = 45,500 150 t firewood @ 45 /t = 6,750 Grants WRG Cpt 9 1.4 ha 1,430 WPG Management Plan 1,000 Expenditure 54,680 Cpt 9 Harvesting 500 t mixed products @ 26 /t = 13,000 Machine haulage 280 Timber haulage 500 t mixed products @ 10 /t = 5,000 Cpt 9 Ground preparation 800 Restocking 4,405 Long Wood Spot spraying & Beat up 500 Gap up Christmas trees 150 Tree Safety works Category 1 1,135 Crown reduction of OK by house Category 2 do in 15/16 Professional fees Organisation, supervision and timber marketing 3,150 Production of management plan 1,000 29,420 Net Income 25,260
Income Timber Sales Trustees for the Beneficiaries of RS Tufty - Woodlands 2014/15 Budget Cpt 9 Felling of Spruce 400 t sawlog / chipwood @ 60 /t = 24,000 100 t firewood @ 56 /t = 5,600 Grants WRG WPG Management Plan 1,000 Expenditure 30,600 Cpt 9 Harvesting 500 t mixed products @ 16 /t = 8,000 Machine haulage 280 Timber haulage 500 t mixed products @ 10 /t = 5,000 Cpt 9 Ground preparation 800 Restocking 1,400 Long Wood Spot spraying & Beat up 500 Gap up Christmas trees 150 Tree Safety works Category 1 1,135 Crown reduction of OK by house Category 2 do in 15/16 Professional fees Organisation, supervision and timber marketing 3,150 Production of management plan 1,000 21,415 Net Income 9,185
Economic Resilience in Forestry Lesson 2 Understand those external factors influencing the resilience of different timber stand types and then act accordingly
Forestry Timber Income Resilience Timber Value Income Significance Significant External Risk Priority Forest Management Response High Quality Hardwood 40k/ha + High Grey Squirrel V High Absolute control Market Failure V High Continue to supply Disease (AOD, Chalara) Quite High Environmental restrictions High Biosecurity Lobby and adjust to regulations Low Quality Hardwood 5-15k / ha Medium Grey Squirrel High Absolute Control Disease High Biosecurity Contractor resource V High Invest & support skills High Quality Conifer 25k /ha High Market Failure High Continue to supply Disease Quite High Biosecurity Windblow Quite High Careful Forest Design Medium Quality Conifer 10-20k/ha Medium Exchange rates High Market responsive felling Disease risk High Biosecurity Market shortages High Grow species in demand Low Quality Conifer 3-7k/ha Low Changes to RHI Low Improve growing stock Market failure Medium Improve growing stock
Sporting Deer Pheasants Other Events Non Timber Income Resilience Value -10 to + 20/ha 1-100/ha / annum -5k to 20k / annum Income Significance Low Low- High Low Significant External Risk Priority Forest Management Response Poor neighbour control High Landscape scale planning Poaching Medium Increase control to reduce 'market' New Species Medium Target control Conflicting activity windows High Close liaison & willingness to adjust Disease High Create conducive habitat Enhanced GS Populations High Increase control of GS Adverse PR & disruption Quite High Manage PR Conflicting activity windows High Understand impacts on other income streams CS Grants Restocking 0/ha Very Low None None Management 100/ha Low Strings attached Medium ( 20/ha?) Live with the consequence of your actions Do Cost Benefit analysis Consider Impact on SFP Intermittent Medium Contextualise the support
Economic Resilience in Forestry Lesson 3 Understand Simple Property & Asset Economic appraisal
Lowland Woodland Owner 260ha 1995-1999 2000-2004 2005-2009 2010-2014 2015 (20 Yr) 5 Year Net Profit Exc Sport Income Woodland Asset Value (million) 189k 28k 83k 66k 366k 1.28 1.82 2.05 2.47 3.17 Actual Tax free Total Return IRR (5yr Period) 6.95 3.03 4.97 7.16 5.12 Comparative Taxed equivalent Value / Share 100000 shares 11.58 5.05 8.28 11.93 8.5 12.8 18.2 20.5 24.7 31.7
Public Forest Estate FE England 2005-2006 2008-2009 2011-2012 2014-2015 2015 (10 Yr) 3 Year Net Profit (million) Forest Estate (Land & Timber) Asset Value (million) Total Return IRR (1 or 3 yr Period) (-39.5) (-119.3) (-61.4) (-46.3) (-266.5) 353 583 839 1285 932-3.3 6.64 9.74 13.18 11.17 UK Tax Payers (million) 28.5 31.8 31.3 29.7 29.7 Value / Share 12.38 18.3 26.80 43.26 48.25 Net additional investment / tax payer/ annum 1.38 1.25 0.65 0.51 0.89
Economic Resilience in Forestry Lesson 4 Address Ongoing Liabilities & Invest for performance
Woodland Liabilities Grey Squirrels Deer Diseased stands Poorly performing stands Unthinned stands Unsafe / dangerous trees & road edges Poor roading / fencing infrastructure Uncontrolled public access
Economic Resilience in Forestry Lesson 5 Get some professional advice
Features of Economically Resilient Woodlands Diverse age class structure ( ideally close to Normal ) Species diverse eg 5-30 species in lowlands depending upon scale, 3-7 in the uplands Some but not all CCF Market orientated management i.e. fell trees at market maturity, when markets are strong. Flexible / open regarding other non timber income activities Invest in standing crops and woodland infrastructure when necessary Owner / manager understands the Silviculture of each species and manages them accordingly Protects against mammal / pest damage & view Deer as a liability and not an asset Attempts zero tolerance with Grey Squirrels Utilises grant support appropriately but ignore fashions / current vogue Works with and supplies niche high value markets Responds to external economic pressures in a timely way
Part 2 - Timber Market Trends
UK Homegrown Hardwood Sawlog / Pulpwood Consumption Sector Trends 1980 1990 2000 2003 2005 2014 Hardwood Sawlog (1000 M3) Pulp/ Fire wood (1000 M3) Hardwood Only Sawmills Dual Hard / Softwood mills 910 520 170 119 72 75 540 480 365 365 300 455 100 52 25 20 16 11 200 130 80 66 55 52
Factors / Causes for Decline in Hardwood Sawmilling Loss of market ( mining / furniture industries) Reduced upstream innovation Cost of reinvestment / H&S Uncompetitive / Cheap imports Inefficient / unprofitable Lack of Business succession Loss of tax relief cross subsidy for estate sawmills Reducing supply from forest Unfavourable exchange rate Valuable urban development sites & allied property boom = LOSS OF CONFIDENCE
Impact of Decline on Woodland Owner Fewer buyers & impure market Reducing contract workforce Reduced investment in crops, infrastructure and people Downward pressure on margins throughout supply chain Increased outsourcing to specialist contractors and managers Decline in owner morale and interest = Loss of CONFIDENCE
Indirect impacts Abandonment - Many woodland owners shut the gate Increase in deer and squirrel populations Lack of management causing bio-diversity decline Ageing workforce The loss of motor manual resource Profile of industry in decline Alternative income sources sought sporting and other recreational income reinforcing mammal populations & biodiversity decline Grant justification altered towards biodiversity and social benefits Aesthetic value increases
UK Hardwood Prices - Trends Ave Butt Size 1995 2000 2005 2015 Oak 100 hft 4.50 4.75 5.50 6.50 Oak 50 hft 3.00 3.50 4.00 4.25 Ash 60 hft 2.75 2.50 2.50 2.50 Ash 30 hft 2.00 1.70 1.30 1.70 Beech 80 hft 3.00 2.50 2.25 2.50 Beech 40 hft 1.70 1.70 1.30 1.70 NB / hft roadside prices
Increasing Barriers to Hardwood Activity Bureaucracy - WGS / EWGS process»asnw Guidelines»Habitats directive»water quality directive»waste directive»cross compliance»nesting birds/ protected spp»nimbies»ukwas / FSC Contractor availability / skill sets Timing / weather / shooting constaints Market Perceptions Aesthetic value / protectionism / nimbysism
UK Hardwood Production & Employment 1980 1990 2000 2003 2005 2012 Hardwood Sawlog (1000 M3) 910 520 170 119 72 75 Feller Year (FTE) Pulpwood / Firewood (1000 M3) 196 102 30 19 13 12 540 480 365 365 300 400 Feller Year (FTE) 409 363 13 Harvester 138 Chainsaw 19 Harvester 83 Chainsaw 18 Harvester 45 Chainsaw 24 Harvester 60 Chainsaw Total Feller (FTE) 605 465 181 121 76 96
UK Forestry - Production Trends Year Softwood Hardwood FC PS Total FC PS Total 2005 4579 3499 8077 101 492 593 2006 4582 3661 8243 45 392 438 2007 4653 4083 8736 40 400 440 2008 4415 3823 8238 43 388 431 2009 5126 3266 8392 87 449 536 2010 4625 4633 9258 70 465 535 2011 4870 5186 10056 75 465 541 2012 4836 5259 10095 55 478 532 2013 5084 5852 10936 78 451 529 2014 4900 6531 11431 71 461 532 UK Forestry Production 1000m3
Softwood grower s margin Crop type 1995 2004 2007 2014 2015 40-50 yr SS/DF 30/t 13-15/t 25-30/t 30-45/t 30-42/t 30 yr mid-thin 10-15/t 0-5/t 10-14/t 22-30/t 18-26/t Ave Clearfell Value ( /ha) 8-10k 4-6k 8-12k 15-22k 12-20k Max Clearfell Value ( /ha) 12000 7500 15000 24500 21000
Perspective on Markets Optimistic ( RHI & Timber) Look after current contractor / staff resource Invest in new staff / equipment and assist contractors & supply chain with continued wood supply Invest in your woodland infrastructure Plant productive spp for the future low carbon world Long term trends are positive Grow quality hardwood / maintain silvicultural standards Silvicultural thinning is not optional for most species Don t be grant led ( FE budget ) IHT relief is for commercially managed woodlands Control Grey Squirrels
UK Forestry Policy & Legislative Framework Two thirds a conifer rotation of broadleaved policy Current support mechanisms targetted towards an unsustainable future Ignores climate / carbon & timber requirement trends CAP blockage Significant Private investment available (billions) Reforestation projects involve multiple & costly levels of consultation with uninformed stakeholders
International Comparison Land Area Million ha Pop n Million Broadleaf Forest Area Million Ha Ratio Hardwood Sawlog Production Million m3 Ratio Hardwood Sawlog / Broadleaf ha M3 / annum Efficiency Ratio France 54.7 66.6 13.55 9.1 4.1 54.6 0.3 6 Germany 34.8 80.6 4.7 3.1 3.5 46.6 0.74 14.8 UK 24.1 64.2 1.5 1.0 0.075 1 0.05 1