I welcome Mr. Martin Lowery, CEO of Coillte, Mr. Ivan Schuster, finance director, Mr. John Dwyer, executive director, Mr. Gerard McCarthy, director of planning and research and environment, and Mr Gerry Egan, company secretary to the meeting. I draw the attention of witnesses to the fact that while members of the committee have absolute privilege, the same privilege does not apply to the witnesses. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official by name in such a way as to make him or her identifiable. I call on Mr. Lowery to proceed with his presentation.
Coillte: Presentation.
Mr. Martin Lowery
Thank you, Chairman. We will cover the presentation under three headings. First, we will touch briefly on the mandate. Second, the bulk of the presentation will be on the 2003 results as requested. Third, there will be a short outline on future strategy and where the business is going.
We have a mandate from the Oireachtas to operate commercially. Our status is as a private limited company that operates in forestry and related activities on a commercial basis. The company is owned by the Minister for Finance and the Minister for Agriculture and Food. It was established under the Forestry Act 1988, which set out its objectives and duties. The objectives are purely commercial; to operate on a commercial basis in accordance with efficient practices, to manage the resources available in a manner consistent with the company's objectives, and to establish woodland industries and participate with others in forestry to enhance the profitable operation of the company. It is important to emphasise that because there is often a misunderstanding as to the nature of our mandate. We do not provide a public service as that is not in the legislation. We are a commercial entity.
The 2003 results are the main focus of the presentation. Profits in that year amounted to €25.5 million. The profits derive from the core forestry business, the enterprise side of the business, from some property trading activities and from the sale of units in Irish forestry unit trusts. They also derive from our subsidiary businesses, such as Smart Ply Europe, Griffner Coillte Limited and Coillte Consult. A question as to the make-up of the profits often arises. One of the charts supplied to the committee distributes the overheads among the different business and shows the make-up of the profits. The core forestry business supplies 71% of group profits. Coillte Enterprises made a loss last year. Trading in property contributed 15% of group profits while 18% came from the sale of units in IFUT and some immature forest sales to IFUT. Subsidiaries and joint venture business contributed 9% of group profits.
Last year was a good year for us, with profits up on the previous year by 36%. The evolution of profits over the years is shown in the graph supplied. The years 2001 and 2002 were not particularly good years because wages and salaries rose under national wage agreements at a time when prices of all our core products fell. We recovered in 2003 and expect to improve further in 2004. The main reason for the improvement was the performance of Smart Ply Europe, our panelboard subsidiary in Waterford. It had been a lossmaker, losing €4 million in 2002, but it made a profit of €3 million in 2003. That primarily accounts for the overall swing in profits but within that there were many other changes, some positive, some negative. In the forestry side of the business, log sales revenue increased by 13%, mainly coming from increased sale of sawlogs — the logs that the sawmillers process into sawing wood. There were also price increases for the first time in three years.
We also had some good sales of wind farm sites and some non-strategic property sales in 2003. Underpinning all this and key to the development of the business is the aggressive efficiency programme in place, which, in the face of rising costs, enabled us to hold our cost base in 2003.
We had problems in some areas, primarily arising from cutbacks in the national forestry programme in 2003. Our nursery business and planting business, both quite large scale, were adversely affected by the cutbacks in the programme. Demand for forest nursery plants was down and demand for planting by the private sector was down very substantially last year. We are budgeting for an improved profit performance in 2004 and currently expect to succeed in that.
I have also provided an analysis of turnover, or make-up of sales. The biggest sales are in logs — we refer to this as timber revenue. This accounted for €91 million. Without getting too technical, we supply our OSB subsidiary with pulp wood directly and we take logs to the value of almost €16 million from that. This figure is added back in again in the revenue figure of €61 million for Smart Ply Europe.The Coillte Enterprises business accounted for €28 million and Smart Ply Europe accounted for €61 million.
The Smart Ply Europe business accounts for almost a third of our total revenue. The graph supplied also explains the substantial increase in revenue over the period 1999-2003. We acquired Smart Ply Europe from our joint venture partner, Louisiana Pacific, in May 2002 and from then on all of the revenues came on to Coillte's revenue line. There were other increases but the predominant reason for the increase was the acquisition of Smart Ply Europe.
Timber sales and their evolution over the period 1999-2003 are shown in another supplied graph. There are two elements. One is sawlog, the logs that the sawmillers can process into sawing wood, and the other is pulpwood. That is made up of the lower value logs — the tops of trees and the forest thinnings that are processed in panel mills, primarily in our own mill, at Smart Ply Europe. Last year, sawlog sales were up by 6% while pulpwood sales fell by 16%. The fact that sales fell was not significant. They fell because there were more residues available from the sawmills for plants like Warehouser in Clonmel, Masonite in Carrick-on-Shannon and Finsa in Scariff.
The committee might be interested to hear how we sell our logs to the sawmills. A fairly sophisticated sawlog sales system was put in place in 1996 in agreement with the sawmillers and with the assistance of McKinsey consultants. It is a market based system. Market prices and the bidding by the sawmillers determine the prices paid for logs. There is a fortnightly electronic auction. We therefore have very frequent electronic auctions where the millers, operating from their own sawmills, bid against each other for logs. The prices are determined by competition subject to a rules based reserve price mechanism, developed by McKinsey consultants, to protect Coillte from market failure. It is a very transparent system operated under the supervision of a third party, namely the accountancy firm KPMG. The system was reviewed twice with the sawmilling industry and it did not seek any fundamental changes to it.
There has been significant change in the planting side of the business. There are four elements in it. The first is planting for Coillte itself, or afforestation on Coillte's own account. Next come farm partnerships between Coillte and farmers. This is followed by planting and contract for the private sector and finally there is restocking of our own plantations. Planting on our own account ceased in 2001 following a decision by the EU Commission that we were no longer eligible for premiums and the realisation that it was no longer economic or possible for Coillte to buy land and plant it. We continued with the farm partnerships and planting and contract for the private sector. In 2003, both private planting and farm partnership shrunk substantially. That was because of the cutbacks in the national forestry programme in 2003. In our case we managed to bring forward restocking programmes and were able to maintain an overall total level of planting which kept the industry and infrastructure in place. It kept the nurseries and the contractors going. Thankfully the forestry programme is restored under the 2004 budget.
There were some key developments in 2003. In the core forestry area the big event was the cutback in the forestry programme, restored under the 2004 budget as noted. Industry confidence has recovered and there is now enormous interest by farmers in planting. We expect 2004 to be quite a good year and the outlook — if the incentive programme and grant premium programme are maintained for 2005 — should be quite favourable.
We have a very well developed processing industry in place, a quiet industry which does not have a high profile. It underpins the value of the forest resource and of the private planting that is taking place. Our sawmilling industry is now very well equipped. It invested over €100 million in new equipment in the period 2000-02, and all the main sawmills are now internationally competitive. We also have a very well structured and balanced pulpwood-using industry. Three of the plants are world scale — our own Smart Ply Europe business, the Warehouser business in Clonmel that makes medium density fibreboard and Masonite in Leitrim which makes door skins. Finsa is also re-equipped and makes particle board primarily for the Irish market. That is the first significant development in 2003.
The second relates to the EU premiums. The European Court of Justice ruled against the Government, which had challenged a Commission decision in 1999 that Coillte is not eligible for premiums. The net result of that decision is that Coillte is no longer competitive in buying land and in planting on its own account. Coillte had bought 23,000 hectares of land since 1993 with borrowed money on the basis of a Government decision that it was eligible for premiums. We have the land, and with hindsight it represents good value for money, but we also have €30 million more in borrowings than we would have planned. One would not normally borrow money to buy land for a 40 year investment. That is too long a time interval.
A third key development in 2003 relates to environmental and social issues. Coillte is certified by the Forest Stewardship Council that its forests are well managed from an environmental, social and economic point of view. The Forest Stewardship Council is a non-governmental organisation and is the primary body, internationally, to certify forests as being well managed socially and environmentally. We operate under 81 separate criteria, social, economic and environmental — about one third each — and we are subject to audit every year. These criteria guide Coillte's operations in the social and environmental areas. We retained our certification in 2003. The up-to-date news is that we have again retained it in 2004. The audit has just been completed. That is in terms of our relationship with the community. It is an important issue.
The next key development in 2003 relates to value added processing. The first and most significant matter is that that the Smart Ply Europe business we acquired in 2002, which had been heavily loss making, was turned around in 2003. It made significant profits last year. It will make higher profits this year and represents a good platform for future growth. A second significant development in this area, in which the committee might be interested, is the fact that we commenced a joint venture project in Mullingar to make environmentally-friendly houses and buildings from timber, using modern technology. In Austria, Germany and Scandinavia timber is used in house building in a much more complete way than here. In a sense we are introducing new technology into Ireland to build houses off-site. Houses are almost totally factory built. The entire walls, inside and outside, are completed in the factory. The house is put together and finished on site. At this stage it is not a big project, but we consider it to be significant because of the technology employed and because of the environmentally friendly nature of the buildings.
The next development in 2003 relates to the land-based businesses. We have co-development agreements with four of the wind energy companies — the ESB, Eirtricity, South Western Services and Treasury Holdings. We have been developing those agreements and we have sold some sites for windfarm development. We have also leased radio mast sites. In 2003 we signed contracts with third party developers to either sell or lease three sites. We got planning permission under the co-development agreements for four windfarms. We had a ten hectare forest near Letterkenny rezoned for housing and industrial development and we have continued to sell small parcels of land that have high value.
We co-operate with local authorities in regard to waste management. We are not actively involved and do not suggest sites. However, where they pick our sites we co-operate with them in terms of looking at landfill possibilities. One issue that arises relates to the buying and selling of land. Every forestry company in the world trades in property. Since 1989, when Coillte was set up, we have bought 61,000 hectares of land and sold just over 11,000 hectares. Most of the sales were in the early years and were mainly to do with the sorting out of issues between Dúchas and the Board of Works. Some of the bigger ones involved the sale of properties which were national environmental sites as regards Dúchas or the Board of Works. We sell small amounts of properties. The amount we have sold in total over the years is less than a sixth of our total purchases over the same period.
I indicated I would touch briefly on future strategy. The other development in 2003 is that the group had a fundamental look at its strategy. It was 15 years in existence and it looked ahead over the next ten years to see where it was going. Our statement of objective is to develop Coillte into a balanced commercial enterprise, with strategic interests in forestry, land-based businesses and value added wood processing. The elements of strategy are to optimise the current estate we have. We no longer are eligible for premiums and nor do we any longer buy land and plant it — the traditional role the forest service carried out. Also, our log supplies are starting to plateau. They grew during the 1990s, reflecting a growth in planting in the 1950s and 1960s. We do not foresee further growth on that side for the next 20 years or so. We will improve the existing estate by planting better species and by putting in roads and developing it. We will also maximise afforestation opportunities in conjunction with third parties, primarily farmers, by way of farm partnerships or private planting. That is the first element of the strategy.
The second element is to continue to build constructive and co-operative relationships with customers, primarily the Irish sawmillers and the pulpwood industries with which we are not directly involved. The third element is to operate at worldclass efficiency levels. A major benchmarking exercise was carried out in 2001 with the help of outside consultants which looked at all elements of our efficiencies and compared us with the best practice in the world — and best practice in forestry in Scandinavia. Arising out of that some 40 separate efficiency projects are in hand — being project managed — and over the next three years we see ourselves matching the best in the class.
The fourth element of the strategy is to build on the successful turnaround of the Smart Ply Europe business. The fifth is to maximise the value of the land assets, without compromising the core forestry values, where there are opportunities to develop small parcels of land for activities which have a much higher value than forestry. We will continue with that. Finally, we will seek to develop new business opportunities within the ambit of the forestry business, where appropriate. That strategy is the subject of discussions at present with the Minister.
I thank Mr. Lowery. I will now take some questions.
I thank Mr. Lowery and his colleagues for the presentation. I have a number of questions arising from it. Perhaps Mr. Lowery would comment on the relationship, if any, with COFORD, the National Council for Forest Research, in terms of research and development. Following on from that, will he say if any consideration is being given to the use of timber products in biomass and for energy production, as happens particularly in some Scandinavian countries and if there are any openings for that in this country?
With regard to the presentation, what are the reasons for the improvements at Coillte? I take it "land-based business, good sales of added value property for windfarms plus non-strategic sales" is a once-off event, in 2002 or whatever, or is it likely that there will be opportunities for further sales? What impact will this have on the overall accounts?
I have before me a report commissioned by the Irish Forestry Contractors Association, which I am sure Mr. Lowery has seen or is aware of. It has a number of queries and criticisms. I would like to hear Mr. Lowery's comments on them. According to the association, members are dissatisfied with the manner of awarding contracts by Coillte, the manner of awarding contracts for harvesting of timber and the systematic, unacceptable and unauthorised work practices and procedures that are an integral element of the Irish forestry sector. I will not deal with the other criticisms but given the tone of the report, members of the delegation might wish to comment on it.
The association carried out a survey which showed there was considerable concern regarding the rates of payment. A substantial number of surveyed contractors — 77% — believed the rates of payment for harvesting timbers had not kept apace with costs. It was the view of a high percentage of contractors that timber was being hauled in excess of the legal limit of 44 tonnes. Those surveyed also had queries about health and safety issues as well as transparency and fairness. This is merely a summary of some of the issues in the report.
Auditing was mentioned. What is the Forest Stewardship Council and where is it registered? What is the nature of its auditing capacity?
Apologies have been received from Deputy Timmins and Senator McCarthy who cannot be with us.
I thank Mr. Lowery for his presentation and welcome the delegation. I am concerned about some of the land acquired and used for reforestation. I refer in particular to agricultural land of very good value. In my county, the purchase of good agricultural land for the purpose of reforestation and the effect that has had on communities is a big issue. I am also concerned about the use of Coillte land for radio masts and landfills in conjunction with the local authorities. The representatives mentioned building a constructive relationship with customers, but what about other sectors, such as local communities and adjoining farmers? There does not seem to be any consultation about the effects of this land usage which has received an angry response from them.
According to Coillte, it has purchased 23,000 hectares since 1993. What percentage of this is good arable land, in comparison to land that would not be of agricultural value? Reference was made to the cutbacks in the 2003 budget and the effect these had on the partnership. I fully concur with the views expressed and I raised the matter during the budget debate. Coillte believes this has now been reversed. Is that based on the latest estimates, or is it because more people have become involved in the partnership?
I too welcome Mr. Lowery and his delegation. Like Deputy Ferris, I am concerned with the issue of planting good land with softwoods rather than hardwoods. Will Coillte reverse that policy and plant a greater number of hardwoods in the coming years?
On a more local level, much damage is caused to country roads when harvesting timber. Does Coillte compensate the local authorities for that?
I also compliment Mr. Lowery and his team on their management of the company and their presentation today. It is difficult not to be impressed by the performance of Smart Ply Europe. It is a phenomenal achievement to turn a company around from a loss of €3 million to a profit of €4 million in a one year period. Perhaps members of the delegation could elaborate on how that was achieved.
I concur with Deputy Carty's comments on the issue of broadleaf deciduous native tree species. It is disappointing that only 4% of Coillte's stock falls into that category. Can the delegation outline the company's strategy to increase this percentage? There would be much public support for dramatically increasing it as quickly as possible.
Can the delegation also expand on the nature of the farm partnerships that have been established in recent years? I compliment Coillte on certain aspects of its environmental operations. It is a big bonus that many of its forests are open to the public. In Monasterevin, County Kildare, there is a widely-used wood, and the same is true throughout the country. However, is Coillte doing anything to enhance public access to forests? What is it doing to introduce wildlife species to large newly-planted areas? Does it see any economic as well as environmental advantages in taking that course?
On the issue of replanting, what kind of timescales are involved between the harvesting and replanting of a particular area? As one drives around areas that have been heavily forested, it is dramatic to see a landscape denuded of its trees. Surely the sooner areas such as these are restored the better.
I concur with Deputy Carty on the issue of relationships with local authorities. The topography of the areas planted means there will always be difficulties in drawing out heavy loads of timber. Are there any formalised arrangements with local authorities to ensure roads are quickly restored?
I thank Mr. Lowery and his team for attending and I appreciate their presentation. I am conscious of the large landowning character of Coillte and it is appropriate that we are meeting in Leinster House, which was once owned by the Duke of Leinster, a large landowner.
A report in The Sunday Tribune late last year stated, “Coillte In Row With State Over €55 Million Grant”. Mr. Lowery mentioned this in regard to the loan held by Coillte. What is the current situation vis-à-vis the Government if Ireland must return €8.8 million which the European Commission considers should not have been received? In addition, grants of €47 million, which the company expected to receive, are no longer available. Has Coillte a solution for that?
Mr. Lowery commented on the unusual nature of having a €30 million loan for a period of 40 years. Is a longer-term strategy needed? Is that part of Coillte's remit, particularly in terms of broadleaf planting, which in general has a much longer economic cycle than softwoods? Would it require a change in Coillte's remit if it was to become more involved in broadleaf planting, as is the case with many of our mainland EU partners?
I appreciate the company's work on the Forest Stewardship Council certification and I recognise it is a commercial reality. Are most of Coillte's customers acquiring FSC certification, such as Medite Limited in Clonmel? Has it become as much a commercial as an environmental objective to ensure that it is well-founded? Is reafforestation subject to the acidification protocol and has this been factored into Coillte's reafforestation plans?
In December last year, a report was cited in newspapers concerning the problem of sudden oak death disease in the United Kingdom. Has the disease been avoided in Ireland and are there any monitoring reports on it? In the 2002 budget, Government support for forestry programmes was stopped and many young trees were lost. Did this loss affect Coillte or private nurseries? If Coillte was affected, has it been taken into account in the figures presented?
The issue raised by Deputy Sargent is a matter between the Department and the EU.
It is Coillte's loss.
It may be, but it is a matter between the Department and the EU.
It is in the presentation.
I am sure Mr. Lowery will understand the situation.
I am also interested in the percentage of broadleaf versus softwood plantations. What is the value of softwood plantations, which are undergoing substantial growth? What impact will the sustainable forest management certification have on Coillte and other parties involved in afforestation?
I was bemused by comments on co-operation with local authorities. The state of county roads has been referred to by a number of people. What does Coillte consider to be its obligations with regard to road damage?
Small employers try to source woods and timbers from Coillte yet are debarred by the restrictive sales methods employed. In County Cork, I know of a company, employing four people, involved in making hurleys, that has no possibility of Coillte supplying it with timber. The delegation may claim I am misinformed but I heard it from the man involved.
I note the Chairman's intervention with Deputy Sargent on the issue of premiums. However, the presentation states that Coillte bought 23,000 hectares of land in 1993 and borrowed money on the basis that it was eligible for premiums. I have some difficulty in understanding why Coillte believed it would have qualified for premiums. Will the delegation explain why Coillte believed so, particularly when premiums are taxpayers' money?
The delegation will be familiar with biomass production in Enniskean in west Cork. In reducing energy production in certain areas, there is a need for replacement sustainable energies. How does Coillte see the use of wood pulp in biomass energy production in the future?
I welcome Mr. Lowery and his team. I congratulate them in the way Coillte's fortunes have been turned around and wish them well. However, I must say to the farmer, as well as to Coillte, that forestry planting on level green fields and good agricultural land is not a good long-term policy. I often wonder at the amount of evergreens planted through the country. I understand the economics of the policy as oak, ash and beech are slower growers. However, over the last seven years many of the plantations established have been small. How will these change the countryside when they come to maturity?
The former forestry department's policy of fencing its lands has been discontinued. Neighbouring farms to plantations have problems with deer roaming, for example. It is difficult to keep them in one place, but without fencing it is now easier for them to roam. Coillte's policy is to forget about fencing and leave it for someone else. In County Waterford, co-operation at local level is good. However, Coillte is a tough organisation to deal with and, at times, its bartering can be very tough. Will Coillte re-examine these dealings and look more sympathetically on the local people in forested areas?
I welcome the Coillte deputation and thank it for its presentation. It has shed more light on its operation. From my county council experience, there was much disagreement in how Coillte operated in bringing timber out of forests while destroying roads in the process. I know of several incidents and I hope it will not recur in the future. While the roads might be quiet and not often used, the construction of a hard shoulder could have averted the damage. In turn a better relationship between Coillte, the affected local communities and the local authorities would have been created. In this regard, I agree with Deputy Wilkinson's comments on fencing.
Two of my suppliers, both small operators, who deal with Coillte for raw materials and timber seem to encounter a barrier to access and costs in some areas. What system does Coillte use? I know of two cases involving people who have been charged different prices in different regions. That made it more difficult for one gentleman to operate his reasonably successful small business which creates employment locally. Coillte has been very successful and many changes have taken place, as I have read in its report. How much of the country could we plant as the nature of farming changes? Twenty years ago the CEO in Tipperary said we would be successful if we planted a great deal more.
Dundrum Sawmills in Tipperary was one of the biggest and best sawmills many years ago, with an excellent workforce but it has been downgraded. Are there any plans for expansion of places like that because a large quantity of raw material will be available in Tipperary in a few years? Medite in Clonmel is taking it up but seems also to bring it in from other areas. There is room to develop a sawmill in that area, particularly with the new road development a few miles away. Perhaps Coillte would consider developing Dundrum Sawmills.
I welcome Mr. Lowery and his colleagues. I congratulate Coillte on moving into a successful phase. Several questions have been asked that echo mine. Many in the farming community would say Coillte can no longer buy land through its partnership with the farming community and other private investors because of its attitude and the way it offloads its products. Masonite in Scariff particularly does not give the farmer a profitable price. That will be a problem later.
Like Deputy Upton, I am interested in Coillte's plans to use biomass as a source of electricity. Farmers are very unhappy with the price they receive for their harvested product. When Coillte purchased property years ago it put up inadequate fencing which was not maintained and so fell down, creating open plains in many places. It does not co-operate with the farming community in repairing the boundary fences. In other areas there are serious problems with the Department of Agriculture and Food about the spread of bovine disease, whether TB or brucellosis. There is a significant outbreak of brucellosis in some areas including north Tipperary and south Offaly, bordering lands where there are large plantations. Some people suggest that it is being spread by vermin which live in the forestry plantation. Is Coillte concerned about this or has it raised the matter with the Department, or vice versa?
Can Coillte describe the level of employment it creates, by comparing the figures in the old forestry section, the number when Coillte started and the present levels? Are the numbers declining or rising? I am concerned about the damage to the roads in the vicinity of the forestry, particularly in rural mountainous areas where there have been serious problems for many years. Plantations look fine when they are planted but when they mature they affect scenic areas or vistas that existed before but are no longer visible.
Looking at land bought and sold between 1989 and 2003, it seems that since 1999 the acreage Coillte acquired annually fell significantly, down each year to 1,503, 1,949, 1,772, 980 and 603 hectares. Is that due to the increase in land prices in recent years? What type of prices is Coillte paying per hectare? That may be an awkward question and I will understand if Coillte cannot answer.
There were no problems on the roads when Coillte was harvesting but there were when it was constructing roadways through the forest and heavy loads of gravel were being transported. That was the most serious disruption in my area. Whenever I have made representations to Coillte regarding hedge cutting or fencing in my area it was forthcoming in its replies, investigated the matter and responded well. It has constructed loading bays in forests close to me that have not been fenced off and which attract anti-social behaviour. People in that area are very concerned about this. The bays are so open that they encourage this kind of behaviour. It may be difficult but if Coillte could put up a temporary fence that could be removed when it is moving timber out of the bays it would be very welcome. Perhaps Coillte will consider that and see if it is feasible.
Mr. Lowery
There is a long list of questions. I will start to answer them but I may ask my colleagues to come in on certain issues.
Mr. Lowery's colleagues are welcome to come in at any stage.
Mr. Lowery
COFORD is an agency of the Department of Agriculture and Food that funds research in forestry. Coillte is a client of COFORD to which it applies for research grants for the laboratory in Newtownmountkennedy. Biomass could well be very important in the future. What will happen to energy within the next 40 years, the lifecycle of forest planted today? What will happen to oil prices? Will there still be hydrocarbon sources of fuel? One of the credible renewables is biomass. That is down the road however because today we do not have a very large resource for biomass.
Current fuel and energy prices mean that one cannot justify planting for biomass only. What can be done is to use residues to fuel both heat and power on a small scale, as is the case in Enniskeen. We have biomass and energy very much in our long-term sights. In the short term, however, we do not have an adequate resource to pursue it on a large scale because the material required is the same as that used by Menite in Clonmel, Masonite in Leitrim and Finn's in Scariff, in particular, to make panel products. There is some limited scope nevertheless and strategically it should be kept on the agenda.
The land-based projects are not once-off; we see them as sustainable and they have been included in the strategy. Coillte owns 6.3% of the land in the country, which is the composite size of two middle-sized counties. Within that there are open mountains and wild areas but also small pockets of land which have potential for uses other than forestry, whether for small-scale developments, wind farms or telecommunication mast sites, for example.
I shall ask my colleague, Mr. Gerry Egan, to deal with the forestry contractors' report, which has been in the public arena for several months and is at its heart a campaign by contractors to have their rates increased.
Mr. Gerry Egan
The first critical issue about our relationship with contractors is that the work available to the contracting sector has more than doubled in the past ten years. Last year the Irish Forestry Contractors Association, IFCA, engaged a consultant to lobby on its behalf. He conducted a programme of media campaigning and so on, culminating in the production of this report. Subsequently, many of the comments and allegations made in the report have been disowned by the IFCA. At the end of this process, the consultant was very much on a solo run. The IFCA would acknowledge that the amount of work has increased and that Coillte has helped the contractors greatly through the provision of training, re-equipping and so on.
As a State company we are bound by Government procurement requirements which dictate that our contracts are awarded through a competitive tender process. We currently have a round of contracts out for tender. Many contractors would prefer to have a long-term guarantee of work and to have prices negotiated at a local level, which is at variance with the dictates of Government regulations. We have been attempting to develop a system where there are competitive price rates while simultaneously ensuring that contractors who are committed to the industry for the long-term will have a continuity of work into the future. We are closely engaged with IFCA in the development of this process.
Mr. Lowery
To answer the question regarding legal limits, Coillte, which accounts for approximately 50% of log transport, operates only to legal loading. We pay on the basis of a load limit of 44 tonnes and most contractors are now also operating to legal loading. We have a rigorous policy on health and safety, with full-time staff ensuring that all relevant regulations are adhered to. One can observe that staff on the ground follow safe working rules.
I shall ask my colleague, Mr. George McCarthy, to answer the question on the Forest Stewardship Council, FSC, certification as he is the person most involved in environmental issues.
Coillte began the process of developing a sustainable forest management programme in the late 1990s and this led to our objective of attaining FSC accreditation. The FSC is an international organisation which was born out of the 1992 Earth Summit in Rio. Its initial objective was to protect the rainforests in the developing world but it has since branched into forest protection in Europe. When Coillte decided to seek FSC accreditation, we engaged in a pre-audit process, undertaken with SGS Qualifor, before completing a full audit in 2000. We achieved FSC certification in May 2001 but only after we had implemented a series of corrective actions identified by the auditors relating to the nature of our estate, the level of biodiversity, the process of consultation with stakeholders, among others. The auditors carry out surveillance on an annual basis and there will be another full audit in 2006.
As a consequence of this process, we now have 13 social end environmental panels throughout the country which are representative of the stakeholders in each county. The panels are selected by a panel of generally three members, two of whom are from outside Coillte while the third is a Coillte representative. As part of the certification standard, we are also required to manage 15% of the estate for biodiversity and we have a programme in place to work toward that end. Regarding the species mix, the standard requires that 65% of the estate can be planted with sitka spruce or spruce, another 20% with other conifers and our aim is eventually to have 10% broad leaves as part of the estate. Those are long-term objectives.
As we clear-fell areas, there is a programme of restructuring in place. A member mentioned that forests become very visible as they grow but our restructuring programme provides, for example, that very sharp lines and plantations are softened.
Mr. Lowery
A question was asked regarding the competency of the auditors. The FSC establishes the standard for certification but it employs professional auditors rather than undertaking the required auditing itself. The choice for Coillte is between SGS Qualifor or the Soil Association in the UK, both professional auditing organisations. SGS, for example, is also responsible for the car testing in this country. It is a large international auditing company.
What about the cost?
I shall allow the Senator to address that issue as a supplementary question.
Mr. Lowery
Deputy Sargent also asked about FSC certification and it is true that some customers for Irish timber require such certification. The initial motivation to achieve certification was a market motivation but the greatest benefit of that achievement has certainly been the impact on Coillte's operations. It has codified, standardised and facilitated the implementation of environmental and social methods that go right down to the forest worker. That, rather than market imperative, is the primary benefit of certification in putting a proper structure on our environmental and social activities.
A number of members raised the issue of good agricultural land being used for afforestation. This is no longer an issue for Coillte as it does not buy land any more. When we were buying land, we could not afford good agricultural land. It may be that farmers today are planting such land but I am not qualified to comment as that is a matter for the Forest Service rather then Coillte.
The issue of consultation with local communities regarding radio mast sites and landfills was raised by Deputy Ferris and other members. Coillte has a structured process of consultation and the FSC standard, in fact, requires us to consult, which we do willingly. A proposal for a radio mast site, for example, is publicised and meetings are conducted with local communities.
We are not directly involved in landfills although several county councils have homed in on our property for landfill. We will consult with them but the primary responsibility rests with the authority carrying out the development. Very little of the 23,000 hectares was good arable land because we could not afford to pay the price of good agricultural land when we were in the market. The cutbacks are reversed, there is a more positive outlook today and we are optimistic about the outcome of the forestry programme for 2004 and the future.
Much of the land going under forestry is not suitable for hardwoods. Perversely, good agricultural land is necessary to grow hardwoods properly. Much of the land we have will not grow hardwoods. As Mr. McCarthy said, our objective is to get to 10% broadleaves because that is as much land as we have that is suitable for growing hardwoods. Hardwoods are not commercial, do not produce a return and require good agricultural land. If hardwoods are to be planted they should not be regarded as a commercial proposition.
We have a structured process of consultation with local authorities for county roads. We plan harvesting operations several years ahead, meet the local authority engineers and agree designated access routes. We do not use every road that accesses a forest. We develop our road network within the forest to come out only on the agreed road. That is our first step to minimise the impact on county roads. For the last three years we have provided some funds to county councils, through a co-funded programme with CLÁR in which Coillte pays 50%, to deal with specific problems on county roads accessing forests. It works well, is good for us and for local authorities, and has taken the pressure off some areas where there were particular problems.
Several factors contributed to the Smart Ply Europe turnaround. When we acquired it we knew the market would turn around but expected it later. Our partner, LP, had decided to withdraw from Europe back to North America giving us the opportunity to acquire its shareholding. At the time the business was loss making but we were not so foolish as to buy a business we thought would continue to make a loss. We anticipated the market turning around in 2004 and 2005 but it turned around sooner and we could operate the plant at full capacity. We ship to North America, Europe, Britain, and also sell in Ireland.
The farm partnership programme has been operating for the past eight years or so. It is a very effective programme under which the farmer puts up the land and we do everything else, carrying out all the forestry activities from planning to planting, to managing, looking after and thinning it, bringing the crop to market and clear felling and selling it. The farmer gets the forestry premium for the period for which he is eligible and we pay him an annuity out of the proceeds of the forest sales for the remaining life of the crop so, in effect, he gets a return. The crop is shared on an agreed basis between the farmer and Coillte. It has the effect of making land available for forestry which might not otherwise be available and making our expertise and marketing and management skills available to the farming community.
We operate an open forest policy under which anybody on foot is welcome to enter the property. We improve access and work in particular with local communities to develop forest amenities, many examples of which show how actively and wholeheartedly we work with them to improve their amenities in our forests. In some cases there is too much wildlife in the forests. The deer are a problem for us as well as for neighbouring landowners. They are wild animals — we do not own them. There is a need for an active management programme for them that we will discuss with the Department of the Environment, Heritage and Local Government. We may need a bigger culling programme to protect the herds and the crops.
We replant within the year almost all of what we clear fell, getting back into production almost invariably within 12 months of clear felling, unless there is some unusual reason for small areas not to be replanted quickly. Clear fells are not pretty, they look bad initially but they do not stay like that for very long because they green up again within two or three years and the forest gets back into production. We do not delay replanting.
The State repaid the €8.6 million paid to us in 2000 so that is no longer an issue between the State and the EU Commission. The Department of Agriculture and Food is dealing with the resolution of our loans. Our balance sheet shows that we can handle this because we have the commercial capability and support to deal with that level of borrowings. We are concerned that having those borrowings may restrict somewhat the pace at which we can develop the business otherwise.
The Forest Service, Coillte and private landowners have put in place a process to monitor sudden oak death. There is a series of observation posts at randomly selected sites around the country. The disease is monitored and reported on annually but is not an issue.
Mr. Lowery
We all prefer broadleaves and would like to see more of them and are working to bring our estate up from 4% broadleaves to 10%. It cannot be done too rapidly. Under the EU grant programme there is a requirement to have 30% broadleaves so new plantings will have a higher broadleaf content. The forest estate being planted, and the replanting, show that lessons have been learned from the past and there will be a better result, choice of species and landscape. Mature broadleaves produce valuable timber. However, as it takes 120 years for them to mature, production is too long and they cannot be regarded as a commercial investment. Softwood trees, such as silka spruce, will produce a commercial rate of return on investment within 40 years. The softwood plantations are high value and there is full demand for all the softwoods Coillte can produce.
Some cost was incurred with the Forestry Stewardship Council but Coillte sees it as an integrated part of the forestry programme. Costs were not excessive and they had more to do with providing properly trained staff. With regard to small sawmills and sales methods, the primary method is the electronic auction system. Anyone can compete in this provided they are registered. There is nothing to prevent small sawmills bidding in the system if they wish to do so and Coillte will accommodate them. A percentage of Coillte's saw log sales are put aside for local sales. They are open to local negotiation between the local forest managers and the small sawmills and are specifically designed to accommodate the one or two man operations at local level. Small sawmills receiving timber should not be an issue. As for timber for hurleys, it is a specific problem as there is not enough hurley ash available.
It is a good thing that Tipperary are out of the championship.
Mr. Lowery
Coillte sourced hurley ash in eastern Europe and imported it to keep hurley issue flowing. That will change because more ash has been planted. However, it will take some time for it to become available. Coillte believed it could qualify for premiums because it was informed by the Government that it was eligible.
Well done. Senator Callanan should take back what he said as it is based on misinformation.
I find it unacceptable for management to give me that answer.
Order please, let Mr. Lowery make his contribution.
Mr. Lowery
The effect small plantations will have on the countryside is a broader issue and includes other agencies apart from Coillte. I am convinced that because of better knowledge, the forests now planted by Coillte will produce a much better result than those 40 years ago. Coillte employs landscape designers in sensitive areas. Broadleaf trees are appropriately planted and species are better mixed. Straight lines of plantations are avoided to prevent breaking the skyline. However, it will take time to show up as these plantations are still young. I am convinced these plantations will provide better environmental and scenic features.
There is a problem with private planting but this is a policy issue that the Forest Service needs to address. Coillte will be happy to work with it in addressing it from a commercial viewpoint. It is recognised that how those plantations will be managed and find their way to the marketplace is an issue that needs to be resolved.
Coillte's policy on fencing is to use it to protect plantations when it is necessary. Coillte does not fence to protect farmland. However, we will co-operate with farmers where there is a fencing problem and work with them as a good neighbour in the mending and laying of fences. Coillte will not take on the responsibility of fencing unless it needs to de done for its purposes. I was glad to hear of the positive experience of members in terms of good co-operation policy with local people. It is tough but also responsive.
It is well-established that 18% of the countryside should be planted with forests. This figure represents best economic use without damage to agricultural production. There is scope to double the present level of planting, which was the objective in the strategy published by the Department and the Forest Service in 1996. Nothing has changed to alter this recommendation.
As to plans to expand Coillte's Dundrum sawmill operation, there are two activities carried out there. One is the production of added value softwood products such as garden furniture. Coillte has also invested in a hardwood processing operation at the plant. It is the only one of its scale in the State to process Irish hardwoods for upmarket furniture production, under the Native Elegance brand name, and flooring. Due to the scarcity of hardwoods, it is not a big operation. However, any available hardwoods suitable for conversion are processed there. We are looking at how to develop the business. There is no lack of will to develop it. That will be a function of the commercial scope of the business.
I cannot comment on the concern raised about bovine TB and brucellosis. It was raised years back but other factors came into play. Coillte might take the blame for some things but not that.
The member was only trying you.
Mr. Lowery
Coillte employs 1,150 people directly and 2,000 indirectly, as contractors. Most work is now done by contract. The sawmills employ 1,100 people directly while the panel mills employ 600 to 700 people. Approximately 16,000 are employed directly and indirectly in forestry. Since Coillte was established, the figure has changed. While in 1989, many forest workers were employed directly by Coillte, currently only 500 are employed. Most of Coillte's work is done on a contract basis as it is more suitable for forestry, which is seasonal, weather and geographically related work. Contracting also gives more flexibility in operations. This worthwhile employment in rural areas sees contractors, with up to €1 million worth of equipment, employing four people. It has a big impact on the local rural economies for which Coillte does not get sufficient credit.
Land acquisition has dropped off since 1989 and stopped entirely in 2000 because Coillte is no longer eligible for premiums and cannot afford to buy land. It had dropped off before that because land had got too dear and very little land was being traded and coming on the market in the late 1990s. The question of what we pay for land does not arise because we are not buying land any longer.
Roads are less of an issue now than they were a few years ago. We have evolved a better system of working with the local authorities, designing single access routes and doing more of the haulage within the forests. Under the CLÁR programme we co-funded local authorities to improve specific roads or access routes into forests and that has worked well.
With regard to anti-social behaviour we have considered fencing off loading bays but this is a difficult issue. Anti-social behaviour is a problem for Coillte in a number of areas and is difficult to deal with. We may well look for co-operation with local authorities in some areas to introduce by-laws which would enable the Garda to enter our property and deal with some of the activity. It is something with which we battle all the time in various parts of the country.
The chief executive seems to have covered everything. Before we conclude, it should be noted that the correspondence referred to by Senator Callanan was received by the Clerk to the committee and circulated. In such circumstances an investigation of the papers on this matter that may be in the possession of other committees will be carried out. The Clerk will be in contact with the relevant Department and also with Coillte. I propose to defer consideration of the matter until an examination of the relevant papers is carried out and the observations of the Department and of Coillte are sought. Is that agreed? Agreed.
I thank Mr. Lowery and his colleagues from Coillte for attending and for responding to questions raised.
The joint committee adjourned at 4.05 p.m. until 3 p.m. on Wednesday, 30 June 2004.