Friday May 9, 04:35 PM
Forestry sector stands tall amid surging growth
If you go down to the woods today, you could be in for a technological surprise. Where once gangs of forestry workers would have been felling trees with chain-saws, you are now more likely to see only a pair of contractors. Two people, using
equipment worth more than £500,000, can between them now fell and clear 300 tonnes of timber in a week. The operator of the felling machine must be able to programme its computer, so trees can be cut to match the size of preordered timber. If the machine malfunctions, the operator is expected to use the internet to learn how to effect running repairs. This high investment in technology and training can be justified because the UK forestry sector has recently enjoyed an unexpected boom, with the value of commercial woodland increasing by 35 to 40 per cent in the past year. Forestry owners have seen the value of their woodlands more than double in the past four years, according to research by Savills (LSE: SVS.L - news) , the property services company, and UPM Tilhill, a forestry management company. Nearly 16,000 hectares of woodland were sold in the UK last year, at an average price of about £4,250 a ha - an increase of about 80 per cent compared with 2006. Surging demand from China and India has also pushed up timber prices. The UK produced about 8.5m tonnes of timber last year, which at an average price of between £35 to £40 a tonne would have fetched £300m to £340m. Last year, UK forestry was the best performing asset class in the UK, with an average return of more than 20 per cent, according to a survey by Investment Property Database, the real estate analysis company. It said the performance was due to a combination of rising timber prices and underlying land values. Buyers have also been attracted to the market by the favourable tax regime for trees. Forest owners pay no income tax on their timber sales, and no capital gains tax on the gain in value of their timber, although they have to pay capital gains tax on any increase in the value of their land. Woodland also counts as business property and receives 100 per cent relief from inheritance tax. Forestry is viewed by governments as environmentally friendly, because trees absorb carbon dioxide from the atmosphere as they grow. An increasing number of individuals and organisations are planting forests in order to offset their carbon dioxide emissions. At a recent conference in Edinburgh, the Forestry Commission, a government department, said it would establish a centre for forestry and climate change to co-ordinate research into the forest sector's role in mitigating and adapting to climate change. The Scottish government has set a target of woodland growth of 10,000 ha a year. Scotland's 1.3m ha of woodland and forest currently produce some 6.6m cubic metres of softwood round timber a year - and this harvest is forecast to exceed 8.9m cu m by 2016, as crops planted in the 1960s and 1970s reach maturity. More than 70 per cent of this is processed in Scotland, and recent years have seen high levels of investment in sawmills and wood-consuming projects - such as the UK's biggest wood-fired power station which Eon (Xetra: 761440 - news) .UK, the power group, has recently opened at Lockerbie, in the Scottish borders. The £90m biomass plant - which uses forestry left overs, such as branches, and specially grown willow - can produce enough electricity for about 70,000 homes. On a much more modest scale, a community group in Argyll formed an energy company to supply wood fuel for a biomass boiler that was recently installed at Lakeland Smolts, a salmon hatchery. The boiler maintains water temperature at the best level for growth of the young salmon. Bob McIntosh, director of Forestry Commission Scotland, said: "Wood fuel and biomass energy systems are highly sustainable and are increasingly popular across the country. "They offer communities and businesses opportunities to use local resources to create new markets and new jobs that will strengthen rural and local economies," he adds. Forestry supports 26,000 jobs in Scotland and generates £500m in gross added value for the economy. Analysis of industry statistics suggests that with timber consumption at 6.5m cu m, Scotland is almost self-sufficient in wood-related material. Forestry got a bad press in Scotland during the 1980s, when the then tax regime encouraged celebrities and sportsmen to invest in plantations on environmentally sensitive sites in the Highlands. Colin Mann is managing director of Scottish Woodlands, an Edinburgh-based company that manages 200,000 ha of forest in the UK and advises investors on the purchase of commercial forestry investments domestically and overseas. Mr Mann says tighter environmental regulations had forced forestry to "come down from the hills" and directed planting towards pasture and farm land. However, with the soaring price of food and land, he believes the industry will have to be allowed to "go back up the hills" if the Scottish government's targets for new planting are to be achieved.
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