Joint Committee on Agriculture, Food and the Marine debate

Farm Foresty Partnership Agreements: Discussion

Vice Chairman

As the Chairman has been unavoidably delayed for an hour or so, I will chair the meeting until he arrives. I remind members, witnesses and those in the Public Gallery to switch off their mobile phones or to put them on aeroplane, safe or silent mode, depending on the device, for the duration of the meeting. I welcome Mr. Joe Healy, president, Mr. Damian McDonald, director general, Mr. Pat Collins, farm forestry committee chairman and Mr. Nicholas Sweetman, farm forestry committee executive, of the Irish Farmers Association. I thank them for coming before the committee today to brief it on issues affecting farmers and landowners with farm forestry partnership agreements.

Before we begin, I draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this joint committee. If, however, they are directed by it to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. 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 Houses or an official, either by name or in such a way as to make him or her identifiable.

I invite Mr. Healy to make his opening statement.

Mr. Joe Healy

I thank the Vice Chairman and members for inviting the Irish Farmers Association, IFA, to address them today. As stated by the Vice Chairman, I am joined by the chairman of IFA's farm forestry committee, Mr. Pat Collins, and Mr. Nicholas Sweetman, our Wexford representative on the IFA farm forestry committee, as well as by Mr. Damian McDonald, director general of the IFA. Before discussing the Coillte farm partnerships, it would be useful to give a brief overview of farmers' involvement in the forest sector.

Farmers began planting their land in the mid-1980s. Following the introduction of improved grants and premiums in the early 1990s, farmers became the driving force of the afforestation programme, surpassing the public afforestation programme. Today, they continue to be the dominant player in the programme.

It is estimated that 18,000 farmers have planted land and manage in excess of 170,000 ha. The age profile of farmers who plant tends to be older as forestry is less labour intensive than other agricultural commodities. Forestry is a long-term crop, with rotations of over 30 years for fast growing conifers and up to 100 years for slower growing broadleaf species. Many farm forests have only recently reached the stage where further management is required. However, timber production is expected to increase rapidly in the coming years as these forests reach maturity. Timber production is forecast to grow from 3.1 million cu. m in 2015 to 7.9 million cu. m by 2035, with almost all the increased volume expected to come from farm forests.

Forestry is a relatively new crop for farmers and as a result they have limited knowledge about the crop. Many lack an understanding of the management requirements of their forests as to when it should be thinned, the volumes that need to be harvested, the product types and the value and market for the products.

When Coillte introduced its first farm partnership scheme in 1992, many farmers were attracted to the scheme, as Coillte was viewed as a safe pair of hands to manage their forest. Coillte, as well as being a State-owned company, is Ireland’s largest and most experienced forest company. Coillte has the management and marketing experience, as well as economies of scale, to maximise the value of the timber crop.

Many of the features of the schemes appealed to farmers. Coillte was viewed as an extension of the State and, therefore, a trusted partner. Coillte took full responsibility for the management of the crop, including thinning, pruning, building of roads where necessary, maintenance, harvesting and sale of the crop. There was continuity in income after the expiry of the 20 year forest premium and farmers retained ownership of the land.

A total of 630 farmers entered into partnerships with Coillte from 1993 to 2012 to manage in excess of 12,000 ha of forests. There are seven different farm partnership schemes in operation. However, modifications to the agreements were negotiated by individual farmers and, therefore, agreements vary from farmer to farmer.

As stated previously, forestry is a relatively new crop for farmers. Many of them entered into the farm partnership agreements without a full understanding of the future value of the crop and the methodologies used by Coillte to determine the annuity payments. The information provided to farmers was unacceptably vague in relation to how payments were calculated, timber valuations, management and marketing costs as well as insurance cover. Even when farmers received legal advice on the contract, there was limited expertise on forestry, particularly in the early years of the partnerships.

Many of the issues today are a direct result of the vacuum of information provided to partners. This has led to concerns that the contracts are one-sided in favour of Coillte and that farmers are not getting their fair share of the thinning and clearfell profits.

It was a condition of all schemes that annual meetings would take place with partners. Unfortunately, it is my understanding that in many instances they did not take place. Even when meetings occurred, limited information was provided to partners on the condition of the crop, how the crop was progressing or when operations were planned to ensure effective management of the crop. The lack of meaningful communication with partners on the management of their forest has led to concerns that the forests are being mismanaged, resulting in a decrease in forecasted revenue. Of particular concern is the lack of communication with farmers whose forests have entered into active management.

In some instances, farmers were not contacted in advance of harvesting operations. When harvesting operations were completed, they were not provided with documentation on the volumes of timber harvested or timber sales invoices. Farmers were provided with no analysis on the progress of the crop following thinning to compare forecasted thinning profits with actual thinning profits, or the implication of higher than predicted growth rates on rotation lengths and annuity payments. Farmers understood that the contract was for 40 years. However, in most cases, due to higher than predicted growth rates, the rotation length is being shortened by Coillte. This is causing concern as many farmers made plans based on receiving an annuity payment for 40 years and clarity needs to be provided on this.

The IFA met with Coillte recently to voice concerns on behalf of farmers regarding the lack of transparency on how annuity payments and profit share are calculated, as well as the distress being caused as a result of poor communication. It was a constructive meeting where it was agreed that Coillte and the IFA would work to try to address farmers concerns by developing principles and guidelines for engaging with partners to strengthen communication and to rebuild trust between partners.

Coillte has a duty of care as the dominant partner with the experience and knowledge of the sector to ensure that partners have a clear understanding of the agreement, particularly the timber revenue models and the distribution of the profits. We are very much at the early stages of developing these principles, but I look forward to working with Coillte to improve communication and transparency with partners.

Vice Chairman

This presentation has come about as a result of an earlier presentation by Coillte to the committee. Serious concerns were raised about farmers and their relationship with Coillte. Before I open the discussion up to the other members, I note that in his presentation Mr. Healy makes a number of points about the contract and the lack of communication between Coillte and the farmer regarding management of the forests and the growth rate, etc. Mr. Healy said seven different types of contract were signed. Was it a standard contract or were these issues not addressed in the contract?

Mr. Joe Healy

I will hand over to the chairman of the forestry committee who would have more details on the particular questions you have been asked.

Mr. Pat Collins

These contracts were signed in good faith but our experience is that these contracts are weighted on one side, that is, weighted in favour of Coillte. They were not weighted in favour of the farmer. If one looks at the lack of transparency and communication, they are weighted in favour of Coillte. Coillte is the dominant party here. As representatives of the IFA, we have seen contracts and there is nothing to suggest that it is a fair contract for the farmer. They signed the contracts but they signed them because they trusted Coillte. Coillte was the dominant and leading force in forestry in the State in the mid-1980s and into the 1990s. That is where the problem is. How do we get these contracts opened up, resolved or looked at? There are serious, significant issues here. There is a lack of transparency. There is no proper management and there is no engagement with the farmers in question. If one has a savings bond, one can go to any bank and ask how it is performing. That has not happened here. Coillte has not engaged in a very meaningful way with its partners. Coillte has never had a meeting where it has told its partners the forecasted growth rates of their forest. There never has been a proper, meaningful engagement with the contracts with any member that I have spoken to. I invite Mr. Sweetman to come in.

Mr. Nicholas Sweetman

I will address some of the difficulties that may arise with the contracts. First of all it is important to note that while there are seven different main types of contract there are up to 35 different actual contracts in so far as each contract was negotiated individually with the farmer in question. In latter years the contracts could be said to have fewer problems but in the early years some of the contracts were completely opaque with regard to what was actually in the contract. I will take a particular example. There was a contract which was called the 1% clearfell contract whereby the farmers' income after the 20 year State subsidy was arranged so that when it came to clearfell, there would be a 1% payment to the farmer. I will give an example of how that might work. With a 40 year cycle, the State would pay the first 20 years and Coillte would pay the next 20 years. Let us assume the sum agreed was €10,000 per annum, and that would be for a reasonably large plantation.

If clearfell occurs at year 40 Coillte would have paid that farmer €200,000 over the 20 years. If it happened at year 30, which is more likely in the current climate, that farmer would have received €100,000 from Coillte. In addition that farmer would be responsible for replanting at year 30 instead of year 40 and the 1% which the farmer would get at year 30 would not be sufficient to pay for replanting. A farmer who was not aware of all this would find himself at year 30 with a clearfell forest and no money to replant it. Far from getting any money at the end he would be owing money because he would be legally obliged to replant. That is one possible problem under the contract. That is only one type of contract and I am not suggesting that all the Coillte contracts are like that because they are not. That, however, is definitely a problem.

A second problem is perhaps to do with liens on the land. If a farmer has a contract with Coillte for some section of the farm and wishes to build a shed and goes to the bank for a loan, he must get permission from Coillte because there is a lien on the land. He cannot conduct his business without the co-operation of Coillte. I am not saying that Coillte would not give permission, I am sure it would, but that is an issue for farmers.

A third very important issue is the business of the requirement to replant. One would assume that most farmers knew about it but the de facto situation is that they do not. As recently as yesterday, because I knew I was coming here, I contacted a lady who planted her entire 15 ha farm, 22 years ago with Coillte. I am not talking about someone who does not know her business. This person would really know her business. She was entirely unaware, 22 years later, that there was any requirement to replant, despite having had approximately 20 meetings with Coillte over the intervening period. She was aghast. She scrutinised her contract from start to finish and could find no mention anywhere of any requirement to replant. It was her own responsibility to know that she had to replant but if she had annual meetings with Coillte over 20 years somebody could have told her that she would have to replant after the end of the rotation.

Those are just some of the problems related to Coillte that are coming to us. I am sure Coillte is trying to address them. They are problems we do not believe are being dealt with at the moment. We had a constructive meeting two weeks ago with Coillte. I would have thought in the intervening two weeks it would have been a good idea for Coillte to at least contact all its partners and inform them that there is a helpline available. This did not happen. To this day Coillte has not sent any circular to its clients informing them that there is help available if they have a difficulty. Coillte told us at the meeting that it had received 60 calls to the helpline from among the 630 people who have contracts with it. I would respectfully suggest that if it received 60 calls out of 630 then in fact 400 of the 630 did not know a helpline existed.

It is quite possible that there are many people, like the pal I spoke to yesterday, who did not know there was a problem. She said she would never have planted trees on her land if she thought it was sterilised for future generations. She said she was never aware that she could not put it back into farming for her children. That is a major problem.

Senator Michelle Mulherin

I welcome the witnesses today to discuss this important issue. It is one that needs to be highlighted and landowners who are in a bind because of these so-called partnership contracts need answers. I say "so-called" because partner seems to be a misnomer when describing the agreements in place between these landowners and Coillte. Many of the cases described show a commercial imbalance between the outcome for Coillte and that for farmers. If people like the woman Mr. Sweetman mentioned had half an idea of what they were getting into they would not have gotten into it at all. There are clear problems.

How many farmers are adversely affected by this? How many have contacted the witnesses? I note what Mr. Sweetman says about the 60 calls to the helpline. The managing director of Coillte, Mr. Gerard Murphy, acknowledged a problem with transparency and communication, which is welcome. To what extent are the problems raised by those 60 being worked through in a satisfactory manner? Are they being told this is what they signed up to? How are they being helped when they call the helpline?

I note that it is not widely known that there is a helpline. That is unfortunate to say the least. Having listened to all that has been said, having read the information supplied to us and having listened to some individual landowners, it is obvious that these are flawed contracts and partnership documents because farmers or landowners are getting a very raw deal. To what extent are any aspects of, or clauses in, the contract, and Mr. Sweetman described seven main contracts and maybe 35 variations on those, void or unenforceable? Mr. Healy referred to methodology. Is it so vague that the farmers could not establish their likely incomes? I understand there are certain unknowns in respect of forestry and it seems some people bought a pig in a bag.

In respect of the liens on the land and the land being encumbered, is Mr. Sweetman saying these partnerships were registered with the Land Registry as the title of the property in all cases?

Mr. Nicholas Sweetman

Not in all cases.

Senator Michelle Mulherin

I presume this also presents a problem for a farmer. If land is encumbered in this way, tied up until it is cleared of forestry and the income does not appear very attractive in most cases, it would be difficult for the farmer to sell on the land. It would not be the most attractive proposition for the buyer to find it so encumbered.

Senator Paul Daly

I also welcome the witnesses and thank them for the presentation. We will meet Coillte after this session.

Mr. Healy said approximately 630 farmers signed up between 1993 and 2012. Most or all of these contracts are weighted towards Coillte because the farmers took Coillte at face value as being an arm of the State. We as politicians know from our daily dealings with people that for every four people who would be that naïve there is always one meticulous man who will go to the ends of the earth, through his solicitor, before signing a contract.

In those situations, which I have no doubt did arise, were different contracts drawn up? What I am trying to get to is whether it was the case that Coillte was cherry-picking, knowing that the contract was weighted in its favour, but if somebody questioned it and got legal advice it was prepared to come back with a redraft that was more farmer-friendly. I am trying to get to the bottom of that aspect of this issue.

Leaving the nature and the set-up of the contract aside, it is bound to have aspects favourable to the farmer. Are they being honoured? Is Coillte honouring the contracts, irrespective of the way they are weighted or is this problem partly due to Coillte not honouring contracts, irrespective of their nature?

Deputy Thomas Pringle

I thank the representatives from the Irish Farmers Association, IFA, for their presentation. Most of my questions have already been asked by the other committee members. I will wait to see what the answers are. I was not here for the first day of hearings, but this is a very useful insight into the way Coillte operates. Some basic questions about the contracts need to be answered. It is very useful for this committee in its dealings with Coillte. When we heard from other groups on Coillte contracts, hauliers of wood, for example, we heard that they were treated as badly as farmers had been. It seems to be endemic where Coillte is concerned. Is this a matter of a big corporate body dealing with individual farmers who might not know any better and simply taking advantage of the situation? What has actually happened? It seems that there has been some improvement in the contracts in recent years. How has that come about, and why has that improvement taken place? It is probably because people have received advice and become more involved. Why do the witnesses believe this improvement has happened? I would like to comment later, if possible.

Mr. Pat Collins

I will address the matter of the contracts. At the start of the contracts, there was an upfront payment of €500 per hectare. This was an enticement to get people involved. People were not made aware, and the majority of people were not aware, that this had to be paid back. That payment is deducted from the clearfell profits, and those profits are index-linked. That is what the contracts stipulate. The majority of people to whom I spoke were not aware that this was taking place. It was not clearly outlined to them at the start. People thought it was wonderful to get €500 per hectare.

Senator Mulherin asked about the lien on the land. People did not know this was taking place. It has caused much distress to a lot of farmers, because they now feel that if they have to borrow money, they must get a letter of freedom from Coillte to allow that to happen. This has caused a lot of grievance. I do not know where this will end but there has been a lack of meaningful engagement on the contracts throughout.

There has been a lack of transparency. There was no indication of how Coillte would calculate the profits for purpose of the annuity. Nobody sat down and engaged with these farmers to tell them the quantum of their annuity payment and how it was determined. Much of the timber that has been thinned has been sold on by Coillte. There has been no documentation to show where it went. Dockets have not been issued. Farmers do not know whether the timber was sold as saw log pulp, stake or pallet wood, or where it went. As the committee is aware, one individual has said more than 4,000 tonnes of timber was taken from his land. That is an estimate. It could be much more.

There are a lot of issues here that need to be resolved. The contracts, as Senator Mulherin said, seem to favour Coillte. I would suggest that they do, but farmers signed up to them. They did not have the required knowledge. These people were the pioneers of forestry in rural Ireland. They were the first people to take this leap of faith and put most of their land in forestry. I deal with a farmer in Galway who has about 200 acres in a Coillte partnership. He is at a loss as to what is going on. There are people who just do not understand the concepts involved.

One woman indicated to me that her Coillte partnership is fine. I asked how long she has planted for. She told me she had planted for 18 years and was getting her money. The one good thing that has happened here is that the State has provided lucrative premiums for people to plant. That is good. However, this woman understood that this was coming from Coillte. She was not made aware of what the true arrangement was.

Coillte has misled people. There is a bigger issue here. People who get annuity payments have money dumped into their accounts. They do not know how the payments are calculated. It is a serious issue for a semi-State body to send out a statement, which is not even on a Coillte letterhead, of a sum dumped into their partners' accounts. That is a very misleading practice for a company the size of Coillte. It shows a lack of professionalism on its part. In one instance, the letter was addressed to the partner's wife, not to the partner himself. That is a serious breach. Coillte has to put up its hands and admit it was wrong that it never informed people of the amount of money due or how to calculate it. The company must admit it was wrong that its representatives never sat around a table with their partners, outlined their annuity payments and what Coillte made from the thinnings that it carried out.

Mr. Nicholas Sweetman

A member asked about the 60 calls made to its helpline. Coillte's has informed us that 30 of the 60 have been dealt with in full. Of the rest, the company reckons it is on the way to dealing with 25. This was the information we got at our meeting two weeks ago. Problems have arisen in a further five outstanding cases. However, that is the tip of the iceberg in my view. I should also point out that we have no way of verifying those figures. For instance, we do not have the names of the 630 people who have contracts with Coillte.

Senator Michelle Mulherin

How many are the witnesses aware of?

Mr. Nicholas Sweetman

I am aware of two or three. That is all. However, as I said, the IFA has no way of writing to 630 people, because we do not even know who they are. We depend on people making a complaint to their local IFA. Many people do not even know that there is a problem. Unless they have finished their 20-year cycle and have begun to receive their annuity payment, or unless they are getting to a thinning cycle or a clearfell cycle, they do not realise that there could be a problem.

Senator Daly asked if different contracts were negotiated in cases where the farmer was well-informed and, therefore, did a better deal than others. I think that is probably true. I am not suggesting Coillte set out to treat people unfairly, but if farmers knew what they were at, they would negotiate a better contract than somebody who did not. Maybe that is part of life anyway, and I am not suggesting that Coillte set out to be unfair. In fact, I think Coillte would be the first to admit that it has adjusted contracts over the years, owing to the fact that some of them were quite simply not up to scratch.

A member asked what happens at clearfell, and whether the land is saleable. If farmers have planted forestry on their land, they cannot sell it unless the buyer agrees to plant it. The requirement to replant stays with the land, whether it is sold or not. The answer to the member's question is that land is seriously devalued if it has just been clearfelled. This is only a rough estimate, but if a unit of agricultural land in a certain area is worth €10,000 and a site has just been clearfelled, its value decreases to €2,000. The value is about 20% of what it would be.

Mr. Pat Collins

Less.

Mr. Nicholas Sweetman

Mr. Collins said it is less. It is certainly seriously devalued.

Mr. Pat Collins

The question that must be asked is: who decided on the farmer's behalf what contracts he should enter into?

Who decided it would be a 45:55 split or 1%? Was it targeted at the age of the person? We are not sure how it came to be done. To follow on from Mr. Sweetman's point, land that has been clearfelled is valued at €500 an acre. That is how hard it is. It is virtually impossible for a person to sell that land because there is an obligation to replant it. The question Coillte must answer is how did it decide the person sitting on my left would receive 1%, while the person sitting on my right entered into a 60:30 arrangement. How did it decide? We are not sure if it was based on a person's age. There are a lot of issues that need to be addressed. I do not know how or in what way Coillte calculated certain annuities. Seemingly many people with larger sites were targeted. It was missold.

Mr. Nicholas Sweetman

It is interesting to note that in more modern contracts the obligation to replant is clear. It is either Coillte's responsibility - in which case it is included in the contract - or the farmer's - in which case it is also included in the contract. In some of the earlier contracts there was no specification as to who was responsible, but, in fact, it was the farmer. It is clear that Coillte has upped its game in the more recent contracts. What is even more clear is that it has realised its communication with its partners has been abysmal during the years. Two weeks ago we came to an agreement that it would improve dramatically, but I am a little concerned that in the two weeks since the meeting there has not been any contact with the 630 partners to tell them that something is happening. We are certainly not in a position to make that contact.

Mr. Pat Collins

The issues of those who have spoken out have been addressed, but nothing is being done for those who are not up to speed with what is happening. There has been no contact. Many of those involved are elderly and perhaps in the case of some of the partnerships intestate. Many have had no communication from Coillte.

Deputy Martin Kenny

I thank the delegates for their presentations and apologise for missing the beginning of the meeting.

Clearly, the position is that the contracts which were developed at a time when forestry was a young enough concept for many were designed to encourage farmers to go down this route. The position seems to be - the delegates can correct me if I am wrong - that everything was weighted in favour of Coillte; by and large, it was getting the best deal everywhere it went. While business is business, at the end of the day the farmer owned the land and was providing the opportunity for everyone to make money.

Mr. Collins mentioned the issue of intestacy. I have come across a number of cases where the person who entered into the contract is deceased. Where do matters stand? What happens now? What mess is left behind?

The people who are sitting across from me are farmers. They sell whatever crop or product they produce at the most opportune time when they can make the most profit from it. They bring calves to the market or sell milk whenever they can make the most profit. In this case the farmers involved did not have the opportunity to pick and choose when they sold their product because it was being handled and sold by somebody else who was a big player in a big business in which there were peaks and troughs. The delegates can correct me if I am wrong, but it seems that much of the timber in the forests under the control of Coillte was used by it to fill in the troughs. When prices were at their lowest, that was when the timber was used, while timber from Coillte's own forests was held back until prices rose again. I certainly would consider that to be in breach of the contracts made. I looked through one of them and it seemed that it stated everything would be done to maximise profits for everybody involved, but I do not think that has been happening. As far as I can see, what has been happening is that the arrangements are being used by Coillte as a means to fill the troughs at times when prices are at their lowest to allow the merry-go-round to continue. At the end of the day, it is the farmer who has suffered the most. I would like to hear the delegates' comments. I am sure Coillte will have a different argument, which is fine and we will deal with it when we come to it.

Deputy Willie Penrose

My colleagues, particularly the Chairman, Deputy Pat Deering, have been alert to this issue. If George Lee, in an excellent piece of public service broadcasting by RTE, had not brought it to the fore and public attention, it would have been buried nicely. In fairness, we must lay the credit with George Lee who did a good job because he found a number of the people who had been affected. Are the delegates concerned? Do they have an inventory of members of their organisation who bave been affected? There seems to be a cohort, particularly in the south east and counties Carlow, Kilkenny and Laois. Those affected seem to be concentrated in particular geographical areas. There are also some in the west but not as many as in the midlands. Have the delegates had contact with them or given advice to them?

Notwithstanding what Coillte has stated and will state, is it not apparent that it was truly in the dominant position? It drew up the contract and its partners - the farmers - had to seek amendments to it, if properly advised which would have required the obtaining of legal advice. It appears from the significant number involved that they did not have an opportunity to do so. Is that a fair point? It tallies with something I did. I stopped a huge number of people from signing wind turbine and solar panel contracts because the proposed contracts would have meant they would have effectively been sterilising their land for a long time. It would have impacted not just on their ability to farm but also their single farm payment which would have been affected, as would have their ability to obtain planning permission for a site for a son or a daughter. That is what has happened. People walked into it and had their land sterilised.

The problem in this instance is that it involves a cash crop with a long-term return. That is the big issue and I had an uncle who was a forester. The unfortunate people concerned were like lambs to the slaughter and there was only ever going to be one winner. I have read Coillte's presentation to the committee carefully. Five scenarios are presented and it is the substantial winner in four of them. There is only one in which it loses in the upfront actuarial valuation and discounting values.

Mr. Sweetman made reference to early maturing forestry plantations. There was a gap in the payments. Surely Coillte had an onus to ensure there would be early maturity or a faster yield or growth to bring the period from 40 to 30 years. It seems people have been left without payments. That is what brought the issue to the fore for many.

There was no need for Coillte to communicate because it was in the driving seat. That is the way it felt. It was driving into the winner's enclosure and there was only ever going to be one set of losers and that set comprised many of the 630 people mentioned. When I saw them on television, what I noticed was that they were elderly and that they included widows. It is not a very good presentation. Coillte can bring in all of the PR agents it likes but a picture paints a thousand words. Many have said to me that this is scandalous and asked whether I am going to do something about it. A group of 630 is small; the number affected is not 6,300. All Coillte had to do was ensure they would be informed and receive their money in a timely fashion, that they would receive an indication of the level of return and whether there would be an early clearfell, as opposed to what had been projected.

The fact that there was a five-yearly review should have been communicated. Now Coillte is running after the problem after it has arisen. It is trying to correct it and while I accept that it seems to have got its act together, as someone who has always supported it, I am very disappointed with the way it has behaved in recent years. I will say this to its representatives directly. It will get it also because it is not very good to see what it has done. It has been running after itself since January or February since George Lee's programme. We have had constant communication and cannot fault Coillte in that regard. The delegates have had meetings with its representatives. However, Mr. Sweetman says he has not been brought up to speed in the past fortnight with what has been going on or on the number of people involved. I know that there are confidentiality issues in that regard, but I had hoped the delegates would identify a cohort of 200 members. Have they not reached the position where they know how many of the 630 are members of their organisation? The IFA could follow up with them in that regard to ensure this issue would never arise again with a contract. The moral of the story is that no one should ever sign anything for anyone without first obtaining legal advice. That is very clear and I send that message to farmers who are contemplating agreeing to wind turbine or solar panel placement or anything else on their farms. It is a salutary lesson, not just for the farming public but also for every member of the public who engages with organisations that are in a dominant position. If many of the farmers involved were to take the ultimate step, the contra proferentem rule and contract would apply whereby those in the lesser position would be viewed as such. It is up to Coillte to ensure that in future nothing will be signed in the absence of proper legal advice being proffered and that it will be privy to it before anyone enters into a contract.

Vice Chairman

Deputy Willie Penrose has put into context many of the issues we face. As he said, the issue was highlighted on a TV programme. Farmers put their trust in Coillte and took what had been put in front of them at face value. I will let the delegates answer the questions in one minute, but do they have proposals for how we will rectify the position? Is there a proposal for a review of the contracts or some template that we could use to ensure fairness would be brought back into the equation for the 630-odd farmers involved? As Deputies Martin Kenny and Willlie Penrose raised questions, I will let the delegates answer them.

Mr. Pat Collins

To pick up on Deputy Martin Kenny's point, yes, it is a serious issue that where the price of timber is low, Coillte can go in and cut its partners' timber. There is nothing to stop it from doing so and it is quite possible and probable that it has happened. Does it have an effect? Yes, it does because it affects the annuity and how it is calculated. This results in an economic disadvantage for the partner in question because he or she is not maximising his or her income. One must ask how someone can sell the timber here and be the buyer at the other end. It just does not work. That is the issue. The Deputy is correct; there are peaks and troughs and it fills the void when the price of timber is down. There is nothing to stop Coillte from doing so. However, at that end it is the sole benefactor because the price of timber fluctuates.

Yes. That is what happened. There was a targeting of two regions: the west, out of the Mountbellew office, and Kilkenny, out of the Kilkenny office. They were classified as having highly productive ground for forestry production.

Deputy Willie Penrose said he was not aware of anyone in the midlands with a Coillte contract. I am sure there are people in the midlands with Coillte contracts. Why have they not come out? Many are ashamed to say they are engaged in a partnership with Coillte because they believe they have been let down. They are ashamed to say they signed up to something and that they have given away their land for 40 years. That is how they feel. They were vulnerable persons who signed up to something without being aware of the effects. As my colleague has pointed out, there was no legal expertise available in the early 1990s. Coillte had the expertise.

The private grower was not aware of the value that timber would be. The core issue now is how we can get a resolution to this. This is why people have not come forward. People are still getting their State premium. It will probably come to a head in three or four years' time when the majority of these contracts finish in the State premium from the forest service and then enter into the annuity payments. This is where the big problem will arise. I do not know how we are going to be able to help these people. This is a big mess and it needs serious attention. Some €300 million is tied up in forestry partnerships in rural Ireland. If we consider the 12,000 ha, at a conservative figure of €25,000 per ha, it comes to approximately €300 million. That is a lot of money, all of which is leaving rural Ireland. The idea of forestry for rural Ireland was to regenerate and put money back in to the rural economy. People now feel that this has not happened.

Vice Chairman

Surely there has to be a review of each of these contracts with some independent arbitrator to say if there has been fair divide of the profits between the landowner and Coillte.

Mr. Pat Collins

Yes, but the Chairman must realise that Coillte has hired KPMG to carry out an audit. They did not consult the partners on this. How can Coillte employ KPMG to carry out an audit when Coillte has not consulted its partners? The partners have to be involved in the negotiations and in the day-to-day decision making in the partnerships. This has not happened. I agree that an independent body has to be set up and there has to be total transparency in these contracts. We must sit down and work out how this can be achieved.

Mr. Damian McDonald

Obviously this is very complex. Even though it affects a relatively small number of people it would appear there are a lot of different issues with each of the contracts. The approach we are trying to look at is to set down a frequently asked questions type document that Coillte would work up, in consultation with the Irish Farmers' Association, IFA. This would at least get it out there, for those farmers we may not have yet come across it, and it would deal with how various aspects are calculated and so on. We would probably need a system to mop up those to get a bit more detail and maybe some form of appeal for people. If they are unhappy with the situation they should have access to somebody so they can sit down and work it out. A lot of these contacts have been in place for a long time and there is a lot of learning from all this. The key issue now is to try and get to these 630 people to see if we can get a resolution for them to move on.

As other speakers have already outlined, as the contracts have been going on for longer the older the person is the bigger the issues appear to be. It is complex because some people have passed away, which presents probate issues and so on. An element of any solution is the need to go through the contracts one by one. We had a meeting with Coillte two weeks ago and I certainly got the impression that Coillte was very anxious to try to work with the IFA to resolve the situation. We must try to get to the 630 people, sit down with them and work it out to come to a fair resolution for it.

Senator Michelle Mulherin

I have a supplementary question to the Chairman's question. KPMG has been retained to conduct an audit. Is KPMG, in essence, going to look at the figures and see if the bottom-line figure deposited in the farmers' bank accounts is correct? Is this the case? KPMG will not be adjudicating on the fairness or otherwise of contract terms. That is a whole different ball game. We could have a situation where Coillte is shown to be correct, but that does not mean the terms were not unclear or unfair with regard to management-----

Mr. Damian McDonald

Coillte can answer as to its precise arrangement with KPMG, but I understand it to be a commercial transaction that Coillte has undertaken with KPMG. KPMG has not been appointed by anybody else to conduct an audit review in this regard, as I understand it. Coillte has brought that company in to assist it in resolving this. That is a matter between Coillte and KPMG. That is a contractual relationship between Coillte and KPMG.

Senator Michelle Mulherin

Is it Mr. McDonald's understanding that the forensic evaluation of the different contracts - the figures and accounting side of it - will be presented to the partners or landowners? Will the landowners get sight of this evaluation or will they just see a line signed by the auditors saying all is in order from the perspective of money accounted for, income and outgoings?

Mr. Nicholas Sweetman

The hiring of KPMG was quoted by Coillte as a device to increase the confidence of the partners in the fairness of the contracts. The farmers' problem with that is if one is hiring somebody to look at a contract to see if the contract is fair, then the person selected should be truly independent and not selected and paid by Coillte. They shall only be looking at the accounting function. Nobody here is suggesting - I certainly do not - that Coillte is cheating on the contracts it has. Coillte is enforcing contracts that are not fair in the current situation. I am not at all suggesting that Coillte is not paying money when it is due, even though the methodology of paying the money is not acceptable to us. I am not suggesting that Coillte has set out to cheat anybody. The de facto situation, however, is that Coillte is not treating the partner fairly. Coillte is in a dominant position throughout this. Coillte has admitted that it has not communicated adequately in this regard.

The Chairman asked if there were any suggestions and I have one. There should be a protocol for a meeting between Coillte and the partner, with a set agenda where the items down for discussion can be agreed. As things stand, in a lot of the cases where the annual visit took place, the visit involved the Coillte representative coming to the farm, telling the owner the trees were grand and asking the owner to "Sign here, because if you do not sign here you will not get the State subsidy". I am not saying this was everywhere but in certain instances I am aware that it absolutely was. It is true that if the farmer did not sign on the dotted line the subsidy, or premium, would have been withheld. It was a probably a form 4 but it does not matter what the form was. It was necessary for the farmer to sign the form in order to get the premium. By extension, the farmer has then obviously had his meeting with Coillte. I am not saying this happened everywhere but I am certainly aware of several instances where that happened. In some cases the meeting consisted of the Coillte representative and one of the landowner's relatives signing per pro, and not even with the landowner present. Clearly this is not acceptable. These are aspects that Coillte itself wants to tighten up on. If the committee is asking how things can be changed this is one of the ways. There should be a proper protocol for these meetings. The five-year readjustment of the suggested increment etc. should also be clearer. It was suggested by a committee member that Coillte thinned the forests when it wanted to fill a gap in its market. That perception is very clear. Whether or not it is an accurate one I have no way of knowing, but the perception is definitely out there that Coillte takes material out of the forest to fill its own orders when it suits and when Coillte does not want to sell its own timber because the market may be wrong. Bear in mind that in some of the contracts the annual income is based on a percentage of the thinnings - in some cases 88% of the net profit from the thinnings goes to the farmer - but 88% of nothing is nothing. Very little income is forthcoming from the forest in some cases simply because the market is bad at that particular time.

Mr. Pat Collins

An independent body needs to be brought in to look at the accounting and how the timber is measured and sold. There is no transparency in this. A lot of people have timber taken away and they do not know where they are in this regard.

Questions have arisen as to whether Coillte has adhered to good forestry practice management. I do not think it has in some cases. There are a lot of issues of mismanagement of crops throughout the country. Many people feel aggrieved by this because this is their income, they signed up for this for their retirement and they have been left hanging out here because there is nothing for them. There is no pot of gold at the end in terms of what they had anticipated was going be there for them. This was signed up to by people for a son or a daughter or maybe for retirement and to enable them to go into a nursing home or whatever the case may be. This has not happened and people are in a very vulnerable state and clarity needs to be brought to this.

Vice Chairman

Deputy Fitzmaurice wishes to make a comment.

Deputy Michael Fitzmaurice

Thank you, Vice Chairman. I am sorry I am late. Since the day this was raised at the committee, how much focus has Coillte put on resolving the problem? Has the communication been any better? According to some of the farmers to whom I spoke, there is a real fear among farmers. If a private operator plants one forest, one gets the grant at the beginning. The contractor gets the establishment grant. The farmer then gets the 15-year or 20-year grant in these cases. There are cases of which I am becoming aware where land has been planted for ten or 12 years and there may be some trees, especially in boggy ground, that have failed. Coillte has a responsibility to maintain these trees and if there is an inspection of them, those farmers are left wide open. It would have to go to an appeal, because their whole grant could be blocked. Has Coillte addressed any of those problems?

Mr. Pat Collins

Deputy Fitzmaurice is correct because there are a number of cases where trees have failed and Coillte has not addressed anything or done anything and has not communicated with those individuals. That can be a serious issue because there can be clawback on the premium and the farmer is liable to pay back that premium. It could be 50%, 60% or 70% over the lifetime of the premium. In most cases it was a 20-year premium. The farmers are at a loss as Coillte can walk away. There is no onus on Coillte. There is a lack of management in many of the forests that I have seen throughout the country.

Mr. Joe Healy

There are obviously many issues as clearly highlighted by Mr. Collins and Mr. Sweetman. They are dealing with them on an ongoing basis. At the meeting between the IFA and Coillte a few weeks ago, it was agreed to develop principles and guidelines to strengthen communication and trust between both partners. There is obviously a very clear desire and need for both of those things to happen. We believe Coillte has a duty of care as the dominant partner and with all the experience it has to ensure the farmer has a clear understanding of the issues in all aspects of the growing process and, in particular, as I highlighted earlier, the timber revenue model and the distribution of profits. There is much work to be done and I hope that the agreement both parties came to a couple of weeks ago will be honoured. It is clear that farmers are at a loss in relation to a number of key aspects. I hope that Coillte will bear that in mind and will work with us. I thank the Vice Chairman and the members of the committee.

Vice Chairman

I thank the witnesses. This a very serious issue for the 600 odd farmers involved. Some kind of independent review of the contracts must take place in order to resolve this. We will suspend the meeting while we wait for the Coillte representative to come in to give his presentation.

Sitting suspended at 4.55 p.m. and resumed at 4.59 p.m.

Vice Chairman

I would like to welcome Mr. Gerard Murphy, managing director of Coillte forests, Mr. Bill Stanley, strategy and business development director, Mr. Pauric Nolan, national partner liaison and Mr. P.J. Trait and Mr. Paul Ruane from the business area unit. Thank you for coming in today to bring the committee up to date on the issues affecting the farmers-landowners with farm forestry partnership agreements. You have been keeping the committee up to date since Mr. Leamy appeared before the committee in December and I thank you for those two reports.

Before we begin I want to bring to witnesses' attention the fact that witnesses are protected by absolute privilege in respect of the evidence they give to the committee. However, if they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence.

Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. 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 Houses or an official, either by name or in such a way as to make him or her identifiable. I invite Mr. Murphy to make his opening statement.

Mr. Gerard Murphy

I thank the committee for the invitation to address it and we welcome this opportunity to address some concerns and respond to some of the issues that have emerged in recent weeks. We have submitted two interim reports to the committee since our last appearance in December and we hope to further build on these today and outline a clear set of actions that will address any outstanding concerns to the satisfaction of all stakeholders. Before that, I will give a little background and context.

Coillte’s farm partnerships are highly innovative products that were launched initially in the 1990s. The agreements were all designed to promote afforestation at a time when this was recognised as a key priority for the sector. The agreements were also designed to provide solutions for farmers who were considering entering forestry for the first time by addressing matters such as maximising access to forestry grants for landowners, providing early cash payments and avoiding the requirements for farmers to sell land. A key principle of the partnerships is that the overall value of the forests is maximised for the benefit of both partners by providing the landowner with Coillte’s expertise and economies of scale, market access and crop certification.

Between 1993 and 2012, seven main schemes were developed and within these there are 35 identifiable forms of contract. Further to this most schemes would have undergone some degree of customisation and negotiation to suit individual needs. The consequence of this is that it is difficult to make direct comparisons between partnerships and each partnership should be evaluated on a case-by-case basis. Let me be clear that every one of our partnership contracts is legally sound. Our records show that all our farm partners had access to their own independent legal advice at the time of contract formation and signing and many of them were subject to detailed and extensive engagement with the partner's solicitor.

In a number of recent reports, allegations have been made or information has been inaccurately represented regarding Coillte’s farm partnerships that we would like to specifically address for the committee. It has been suggested that Coillte has not paid partners what they have been due and has in some cases harvested timber which is not accounted for in profit calculations. Coillte can confirm that having reviewed its contracts with farm partners, it is satisfied that there are no cases where partners have not been paid what they are due and it is satisfied that it is fulfilling all of its contractual obligations. All timber that is harvested has been and will be included in profit calculations that determine payments to the partners. It has also been suggested that some farm partners will only receive 1% of profits from the partnership. We refer to the case studies in the presentation, which clearly outline that there is a good balance of payments between the partners. The precise profit share at clearfell is based on the scale and level of early payments that have been made. For example, partners who received larger earlier payments will receive a smaller proportion of the clearfell profits and vice versa. In most cases the partner will receive approximately 60% of overall cash generated from the crop. In some cases, and particularly the index-linked schemes, Coillte is forecast to make a loss on its share of the partnership.

It has also been reported that forests have been poorly maintained. Coillte has a very strong motivation to manage these forests to a very high standard in order to protect its investment to date. Coillte ensures that its forests are managed in a consistent and professional manner to the highest standards. All Coillte forests, including those involving farm partnerships, are independently audited and certified as being well managed to both Forest Stewardship Council and Programme for the Endorsement of Forest Certification standard. This certification adds significantly to the overall value of the timber produced from Coillte’s farm partnerships. A number of Coillte’s farm partnerships, including those which have recently received media coverage, have won Royal Dublin Society forestry awards for the sustainable management of the forests.

It also has been reported that Coillte has not communicated with its partners, in some cases for 20 years. Let me state clearly for the committee today that this is simply not true. Given the length of partnership of over 40 years and changes in circumstances, we recognise the need to strengthen communication processes, particularly around more formal systems of communication and transparency on payments and how profits are calculated. We are taking active steps to address this. The level of communication is very much related to the activity phase of the crop. Our records indicate that while our formal communications need improvement, there has usually been regular operational communication with local foresters. Our records of correspondence, meetings and site visits clearly demonstrate that it is simply not true to say that there has been no communication for 20 years.

It has also been reported that Coillte deducts a 15% marketing cost. This is incorrect. The contracts specify exactly how the marketing cost is calculated. The precise percentage is calculated every year based on historical costs in Coillte’s annual accounts related specifically to the cost of sale. The marketing charge is based on direct costs of marking and measurement and is approximately 2%, not 15% as has been reported. The actual charge is consistently in the order of 2%, which is well below the industry standard.

Deputy Pat Deering took the Chair.

Mr. Gerard Murphy

Since 1993 Coillte has paid €20.8 million in direct payments to its farm partners and over the same period Coillte has received €3.8 million from crop profits. That is €17 million that Coillte still needs to realise and that does not include the significant management and overhead costs incurred in managing these partnerships. Taking this into account, Coillte has a very significant interest in maintaining these forest crops well and maximising their overall financial performance.

I will speak a little about the operation of the scheme and its benefits. The key feature of the partnership agreements is that there is an agreed profit share between the partners. The structure and timing of this profit share varies for each scheme. In many cases the partner had a choice of different schemes, depending on the individual preferences. Profit share is typically realised in most cases by the partner through the payment of an annuity and a share of clearfell profits at the end of the crop rotation. In certain schemes, the partner receives a guaranteed payment through the life of the crop, irrespective of the performance of the crop. The precise share of the profits payable to the partners at clearfell is primarily determined by the value of advance payments plus the annuity payments the partner receives. Upfront payments are calculated based on the forecast profitability of the crop. In later agreements, these payments are reviewed on a five-year basis to reflect the actual rather than the forecast performance of the crop.

Profit is calculated by reference to direct costs only, such as harvesting, haulage and marketing, and it does not cover any management charges. Coillte recoups its management and overhead costs from its share of the profit. Coillte receives a small portion of profit from thinnings, typically 20%, as they are carried out but must wait to the end of the rotation to realise most of its share of the crop value. Coillte incurs a further cost across our partnerships in the order of €500,000 per annum in respect of our direct management costs. This is recovered from Coillte’s portion of the profit share. The partner also receives an annual premium through the first 20 years paid by the Department of Agriculture, Food and the Marine. More than 80% of Coillte’s farm partners are still in the phase where they are in receipt of grant premiums. I have produced a schematic for the committee of how a typical farm partnership agreement operates and it is included in an appendix to the presentation.

There is a good balance of benefits for both partners throughout the crop rotation. In addition to this, the farm partnerships provide important benefits to the wider timber industry. As Coillte receives its returns primarily at clearfell, the flow of benefits to date has primarily been to the farm partner. Coillte is committed to these partnerships to realise the investments of everyone involved. It has a duty of care to protect and maintain its investment in these forests to date as a State asset. Our case studies, which are presented in appendix B and are summarised in the accompanying table, show that there is a balance of benefits and risks to both partners. The vast majority of farm partners should receive over 60% of the value of the plantation over the course of the crop rotation. In all cases, Coillte is responsible for optimising the value of each partnership for the benefit of both partners. Coillte is committed to living up to this responsibility.

At a meeting of the committee in December, a number of matters relating to Coillte farm partnerships were raised. Subsequently, Coillte engaged with the IFA to understand and discuss a number of matters raised by IFA members.

Based on constructive engagement between Coillte and the IFA, we believe that we have an agreed list of key issues. Coillte has committed to address each of these issues through future engagement with the IFA in order that it can then be communicated to members and other farm partners.

In the meantime, Coillte has already taken a number of actions to address some of the concerns that have been raised by farm partners. These have largely been detailed in the interim reports that we have submitted to the committee. As members are aware, Coillte wrote to all its farm partners in December informing them that it had put in place a dedicated phone line to provide a support service. We have actively encouraged all of our partners who need support to contact that line. The number for this line is on the company's website and was also published in the Irish Farmers' Journal.

All calls to this line are logged and assigned to the appropriate person within the organisation. Since 15 December we have received approximately 80 calls to the helpline. The vast majority of calls have been requests for information and have been easily dealt with. A further number of issues are being actively followed up and resolved.

In December, this committee highlighted that in a number of cases, there is a gap between the expiry of the grant premiums and the commencement of Coillte's annuity payments. This situation arose due to a change in the timing of premium payments. Coillte has agreed that where this situation arises, it will honour the spirit of the agreement and will commence annuity payments a year earlier to ensure continuity of income for the landowner.

We have received clear feedback from our partners through this engagement that they are frustrated with the lack of information about payments and how they are calculated. We acknowledge this frustration and apologise to our partners. We have commenced active steps to improve the quality and level of information that we provide to our farm partners. This will include an annual statement which will detail any payments made, any payments due and the basis for their calculation, in accordance with the partnership agreement.

We have retained KPMG to carry out an independent review of how payments are calculated and to verify that the calculation methodology is in line with the contract. This is designed to provide a new level of transparency to our partners on how payments are calculated and to give our partners confidence that calculations are being carried out correctly. We are initially prioritising those partners who are already in receipt of annuity payments from Coillte or for whom forestry premium payments will expire this year. We expect to be in a position to issue these statements in advance of the annual partner meeting this year. It is our intention to provide this information to all our partners in due course. These commercial statements will also serve to address concerns related to insurance, specifically which portion of the crop each partner should insure.

In a number of cases, to ensure that our calculations are accurate we are carrying out a full updated forest inventory. This process is already well progressed. The updated inventory will confirm productivity and any thinnings that have already taken place. It will ensure that accurate statements are produced and that payments are correctly calculated.

Coillte is aware that in certain cases, partners have looked to exit the partnership agreements. Coillte's position is that where genuine reasons exist, we will explore options with farm partners on a case-by-case basis, subject to normal commercial terms. Our next steps are to close out all remaining issues on our call log, prepare commercial statements for our partners, engage with the IFA to agree responses to the issues raised by its members and present options to partners who wish to exit their agreements or for whom it makes sense to restructure their payment schedule.

We believe we have created a significant valuable asset for both parties though the innovative approach taken with the farm partnerships. We have enabled this value to be released to partners in various ways to suit partners' expectations on income continuity. Out of our 630 partners, we have identified approximately seven partners who have expressed significant dissatisfaction with their partnership. While our preference is to continue in partnership, we are open to explore either buying or selling out these partnerships on full commercial terms. We have paid out a net €17 million in payments to date, not including management time costed at approximately €10 million. Like any other commercial partner we need to recoup a return on this investment. We remain committed to our contractual obligations and expect our partners to do likewise. Coillte is open to engagement with any partner who has difficulties or changed circumstances and is committed to improving transparency and communications. We have already taken steps to improve these areas. We will continue to engage with the IFA to address the issues it has raised, especially on commercial transparency and improving communications on resource management and sales strategy.

I am grateful to have been given the opportunity to address the committee today and we will gladly answer any questions.

Chairman

I thank Mr. Murphy. I apologise for being unavoidably absent for the first part of the meeting.

Deputy Willie Penrose

I thank Mr. Murphy for his presentation. Does he not feel embarrassed that Coillte, as a semi-State company managing State assets, working in partnership with farmers, has let down those farmers, many of them elderly or widowed? It has failed to communicate with them in a proper, open and transparent way, explaining every step in the process and what is due at the various stages of the contract. I note that Coillte has now engaged PR companies and everything else but it is a bit late for many of those people. I accept that from here on in, the issue is being viewed in a different light.

Coillte is a big organisation. Has it not failed to ensure the people in a weaker position were properly advised and communicated with? Let us call a spade a spade. It was vital that such people clearly understood the terms of the original contract. Mr. Murphy noted that many of them received legal advice. Is he able to say that in each of the 630 contracts, he has documentation to prove the people were properly and legally advised?

Coillte is in a dominant position. We understand that some people do not even realise that on completion of felling they would have to be replanted, which is the equivalent of effective sterilisation. After the 30 or 40 years are up, the farmer is back in the cycle again. Has Coillte established a proper forum for farmers to ventilate their grievance? KPMG has been retained but that is from Coillte's side. Its review is the equivalent of trying to unscramble the egg. It is one side of it. KPMG is operating under Coillte's instructions. It will just ensure that payments are properly calculated in accordance with the contract. Surely, in view of the one-sided nature of the contract, there should be an effort to review the contracts in a current context and apply current valuations, terms and conditions thereto. In the interests of restoring trust and confidence, the contracts should be rejigged. That seems to be very important. Some of them were taken out in 1993 and 1994 which is 25 years ago. I was first elected to the Dáil in 1992 - it is a lifetime away. Many things have changed in the interim for those people.

I acknowledge that Mr. Murphy said that if somebody has not fully understood the nature and extent of the contract, in certain circumstances Coillte is prepared to negotiate his or her exit, which is fair enough. That is what I understood he said - maybe he did not. Perhaps I am not very clever but I thought that was there. In that context, what does it mean for someone who has been in for 25 years and wants to get out, given that Coillte is saying that at the end of the felling process people have to go back in and replant? Does that take them out of being bound by that additional term? That is very important.

While I might not be too well up on this, the terms and conditions under which contracts were predicated seem to have changed. There were things such as increased growth rates, earlier maturity and a shortening of the rotation period. These farmers, many of them elderly, were in the inferior position in terms of their contractual understanding; they expected it to be 40 years or so. How often has Coillte reviewed them? I thought a review was supposed to have taken place every five years. That does not appear to have been the position. I have listened carefully to the IFA presentations and that does not appear to be the position.

Is it the case that Coillte was harvesting to suit itself because there was a timber deficit? In the valley period, did Coillte harvest to suit itself, irrespective, and without letting anyone else know about it? Those are the questions I have to ask. If there was harvesting at times of early maturity, were the concomitant payments as a result brought forward to reflect that and paid out to farmers? I am trying to garner from what has been said that there is early maturity and, thankfully, trees appear to be growing better. Of course, there are a lot of targets to meet in the forestry and Coillte area. Coillte has a role to play in that but private farmers seem to be leading the way with 18,000 of them working on it. Those are some of the issues of which I took note. The five-year adjustment is very important. Has that been kept up to speed? Can the witnesses indicate to us where the vast bulk of the 630 farmers, or partnerships as I call them, are located. Are they in Cork, Kilkenny or Carlow, Laois or across the midlands? I noticed the excellent programme by George Lee, which I praise again, and our Chairman has been in the vanguard in this area also. George Lee did an excellent public service because we would not have heard a word about this without his programme. In fairness to the Chairman, the committee had been on about this in December. He brought it out and I saw a whole cohort of people I felt very sorry for. I saw an elderly man of 73 who thought he should have got a big share but who got nothing. Another man with two parcels of land failed to maintain. Another lady had 90 acres. There was a horrendous lack of transparency. Another person had been at annual meetings but no information was given. Those people are hard-working and decent and they were frustrated and disappointed. I felt very hurt for them having been a strong supporter of Coillte over the years when I had good reason to be. However, those people have had a major influence on my attitude to Coillte which is a very large organisation charged with a great responsibility. It has behaved in a cavalier manner to those people and it has a lot of ground to make up. It will take a lot of PR companies to come back after a lot of people in Ireland watched George Lee on the news.

Senator Michelle Mulherin

I welcome the witnesses. This is before us because we have received complaints about the partnership agreements Coillte has entered into post-1990. We have had a flavour of these exposed in the media, through the cases brought forward by the IFA and also individuals who have contacted myself and other members of the committee. Generally speaking, the issue is financial transparency and how the moneys to which people are entitled and actually receive are calculated, but there is also an issue of fairness in the terms and conditions of these contracts. Other complaints relate to the management or suggested mismanagement in places of the actual forestry itself. For example, I spoke to a man earlier today who complained that where trees overhang public roads or private roads over which there are rights of way to commonage, for example, Coillte refuses to cut them back. I understand in some cases that to take out thinned wood, Coillte employs contractors to enter the land who drive over fencing and so on and leave it, in the absence of fencing, first, insecure, and, second, to pose a danger to animals, including sheep and dogs, as well as to walkers. Often, these contractors enter the farmer’s land without any notice and there is no restoration or making good of any damage to the land when this is done. Another issue which I ask the witnesses to clarify is the suggestion that Coillte does not pay towards the installation, maintenance and upkeep of roads and that either the farmers or State grants have been obtained to provide them. Obviously, Coillte is bringing heavy machinery onto roads which are not reinstated to clearfell or thin out the forests. These are just some of the complaints.

While Mr. Murphy set out some global figures and provided the committee with case studies, I have details here of a 1994 partnership contract and one wonders why, on the face of it, any farmer who knew what he or she was doing would ever sign it. Under the contract, the farmer obtains a grant to buy, plant and maintain the trees for the four years to establish a forestry and signs the benefit of the grant over the Coillte. Upfront, Coillte has no capital outlay on this asset. The farmer gets a premium for 20 years which comes from EU-Government funding and is not payable by Coillte. There is an annual payment, which I am told is called a "life pay", over the lifetime of the crop until it is clearfelled. Notwithstanding that, in this particular case the farmer gets no revenue from thinnings and on clearfell gets just 1% of the net profits. As has been mentioned, this farmer, as appears to be common case among landowners, will have to bear the entire cost of replanting to establish a new plantation after clearfelling. That is estimated at €3,000 per acre. Coillte is in a position to decide unilaterally when to clearfell and when to thin and there is no consultation with farmers. The witnesses may not have heard the IFA witnesses earlier, but it was clear that there are commercial concerns about Coillte’s methodology. If it thins or clearfells when wood is cheaper, that will impact on the price the farmer will get. I appreciate that Coillte has different types of contracts, but there is an impact there and Coillte is the ultimate beneficiary of this raw material in the forestry itself.

That is a summary of the complaints. This particular farmer regrets very much getting into this at all and it seems there are a number of farmers in the same position. This is a lot more than just a failure to communicate or to be transparent. The bottom line is that on the face of it this looks like a very lop-sided partnership. It is not a partnership, which, as I stated earlier, is a misnomer. It appears to be a case of very hard-nosed commercial activity on the part of Coillte. I do not know what advice farmers got but this is the situation in which they find themselves now.

To shed light on some of the issues, would Coillte be prepared to bring material before the committee? We are told there are 630 contracts. In its presentation, Coillte said that only seven partners had expressed a signficant dissatisfaction. By the same token, I understand from what the witnesses have said today that the only thing people have been told is that there is a helpline. Coillte has not specifically reviewed things or written to those 630 farmers or landowners to ascertain what concerns there are or to enter into a dialogue with them. If it has, that has not been said to the comittee. Coillte has also pointed out that at this juncture 80% are still in a phase of drawing their grant premia. It may be that this problem is arising now because a lot of people are at the end of the life of the forest which is ready to be felled and farmers are wondering about money.

They have probably been doing so previously as well. The problem is being compounded by poor communication. Would the witnesses be prepared to give the committee the number of contracts involved on a county-by-county basis? I presume that we are not talking about partnership agreements in all cases, which are obviously legal contracts of a certain nature. Could the witnesses set out the different contracts that have been entered into with landowners in respect of the use of their land in this fashion?

Reference was made to the complications relating to probate in the case of the death of the person who originally entered into the contract with Coillte. The successor is not privy to that contract. In some cases, a contract does not seem to be available for the next of kin or the successor to see. I understand that difficulties may have been experienced by some landowners or successors in getting copies of contracts. Can the witnesses confirm that this will not be a problem, that there will be transparency and that the contracts will be furnished to whoever is going through the probate process in respect of an estate?

We have been told that there were seven original agreements, which morphed into approximately 35 variations. Have there been any addendums made to agreements afterwards in respect of which people have raised issues? Have there been cases in which an initial agreement was drawn up, problems arose and further or supplementary agreements were made?

The witnesses also stated that Coillte is prepared to consider people buying themselves or getting out of partnership agreements on commercial terms. How many landowners have been released from the terms of their partnership agreements? Has anybody actually been released and, to whatever extent the witnesses can tell me, on what terms?

On transparency in respect of money, it has been said that some people are having money put into their bank accounts yet they do not know the breakdown of it or if they are getting a fair amount. Coillte has retained KPMG, which may sign off and say that this is correct. Is the farmer or landowner going to get a chance to see the supporting documents that KPMG will have sight of, in order to try to ascertain for himself or herself that he or she is getting a fair price? Will that information be forthcoming or are we just going to get a few lines from KPMG to say that everything is fine and has been done in accordance with the terms of people's contracts?

In respect of Coillte's annual reports and accounts, to what extent can the profit or loss attributable to partnership agreements be gleaned from these documents? If I view Coillte's accounts, can I see where these partnership agreements are dealt with and where their profitability or otherwise is referred to? The witnesses provided some figures regarding payments out. Is there a place where I can see what profit and loss is attributable to each agreement on an annual basis?

While the witnesses said that people had the opportunity to avail of legal advice, it would seem that many of these contracts were entered into when it was not very prudent to do so on the part of the farmers. Indeed, it seems that if they pressed it, they could have got a better deal from Coillte. The fact that there have been variations to the contracts suggests that some people did and perhaps got a better deal. I am just making an assumption there. As I highlighted earlier, elderly farmers on a particular type of contract are in some cases getting 1% of clearfell profit. They are being asked to re-establish crops at a cost of €3,000 per hectare at their own expense, with no grant aid available. In some cases, as we have been told by the IFA today, people did not even realise they had to replant their forests. Do the witnesses from Coillte think that is fair? In effect, it is win-win for Coillte and no-win for farmers.

Another issue I mentioned earlier is the clause in the contract that allows Coillte to unilaterally clearfell when it feels it can do so, up to a period of 40 years. The other partner - I use that term loosely - really has no input. It has been suggested that this is an unfair term of contract and that it is unenforceable. I can guess what the witnesses' response will be but I am putting the point to them nonetheless.

I mentioned complaints earlier in respect of management and contractors going in and land, fencing and roads not being reinstated. Apparently, as I understand it, these are not express terms in most of the contracts. Would the witnesses accept that it should be an implied term and that these matters should be the responsibility of Coillte in the course of proper management of forestry? Would they agree that Coillte should be obliged in this manner? Perhaps they can clarify the situation in respect of the 630 contracts, given that they are aware of what is in them and we are not.

What I got from Coillte's presentation is that it is speaking to the issue of poor communication. It puts its hands up to that and maybe some transparency. I would like the witnesses to speak further to the issue of unfair terms of contract and the vulnerability of many of these farmers. Many of them are older now. Coillte is in a position to trade on and use as good currency the fact that it is a State company. It immediately endears itself to farmers for this reason, yet we have these complaints coming from people. It may not be the biggest number considering the number of farmers who are engaged in forestry. However, for a vulnerable elderly person, it is a difficult situation to be in. They are left in the dark and are wondering about when they are going to get money. A large number of them made this investment in the hope that they would have a nest egg or some income to mind themselves in old age and, perhaps, to look after bills, including those relating to funerals, when they are gone. That does not seem to have turned out to be the case for them. Despite the statement "We entered into commercial contracts", many contracts have been modified. That clearly means that the original contracts left something - or a lot - to be desired as regards landowners.

I hope the witnesses have had an opportunity to take down my questions, of which there were many. I have a note of them if anyone needs refreshing as we go along.

Mr. Gerard Murphy

I thank the Chairman and members for their questions. Deputy Penrose asked if we are embarrassed by what has happened. I would have to say that the vast majority of the farm partnerships are working well. We believe that after going through the process. Obviously, there are very dissatisfied partnerships. I would prefer not to have that position. We are actively engaged with them to resolve any of the issues that they may have. It would be wrong to say that I am not concerned. Whether it is one, two, five or 100 partnerships, I would like to have all our partners fully satisfied in terms of honouring the obligations we have set out with them.

Another of the Deputy's questions relates to how we communicate with them and whether they are properly advised. As I said earlier, according to the review we conducted, all contracts were the subject of independent legal advice. I have not yet seen an example of a contract that was not subject to such advice. There would have been extensive communications with the farm partners in terms of how those contracts were entered into and what people were looking for. At the time - 20 years ago - the big issues for farmers coming into forestry were continuity of income and access to management expertise. That is what they were looking for because they were concerned, going into forestry initially, about how they were going to have income continuity, particularly from farm premiums. This is what was designed by the partnerships in the context of what we were doing.

In terms whether they were properly advised regarding the replanting obligation, there is a felling licence obligation in all contracts and the replanting obligation is part of that. In the context of all of the premiums, the form 1 and form 2 contracts people would have entered into would have reminded them that there was a replanting obligation. In terms of the call log, the form and whether we wrote to people, we did write to all our partners setting out the call log and we also advertised it in the Irish Farmers' Journal. In terms of all of the recent media coverage, the issues are certainly well publicised now.

The Deputy asked a question as to why we are using KPMG in the context of transparency.

Deputy Willie Penrose

No, that is not what I asked. KPMG will read the contracts, apply the payments and verify what is due under the contracts. That is not the issue. KPMG is going to take a literal approach. It will take the contracts and read them. I could read a contract in ten minutes and determine what is due at a particular time. My question is whether KPMG has any power to examine the five-year adjustments which should have been carried out and which may not have been carried out. Is KPMG in a position to ensure that all of that is correct or is it just engaged in a payments process? I want that cleared up because it is important. KPMG is a big company but this is the equivalent of trying to scramble an egg. KPMG is operating on the instructions of Coillte. It will just ensure that payments that are deemed to be due are properly calculated. However, the one-sided nature of the contracts is now evident and everyone cannot be wrong on that. Mr. Murphy has a different view and that is fair enough. He must put the company or corporate view out there but he is going to hear from so many people, including my colleagues here, that the contracts are unilateral in the context of equality and, from that perspective, KPMG has no role. The only role in that context is for Coillte at corporate level. As I said earlier, Coillte should consider rejigging the contracts in the interests of good business relationships with those people who are affected. Mr. Murphy has claimed that there are not many people affected. If that is the case and there are only ten or 15 people affected, why not do it for them? Why not ensure that some of the issues raised by Senator Mulherin are addressed? She is not making it up. She comes from Mayo and knows what she is talking about. Why can issues like maintenance and so forth not be looked at? There is a huge amount that is outside the remit of KPMG. It is only looking at the monetary end of things. I am referring here to the contracts, the wording of same and so on. I would like to see Coillte rejigging the contracts.

I made the point to the IFA representatives that the numbers affected are small and Mr. Murphy has reiterated that. However, there may be other people out there who have not yet realised the position and who have not understood the import of those contracts. Some contracts were only signed in the late 1990s and something will only hit the fan in the next three to four years. There may be a greater cohort of affected people then. We need an awful lot more information from Coillte. We want to know where the people affected are located and the nature of the contracts that were entered into. We also want to know how much time is left before the contracts expire and the anticipated end-date of those contracts. Then we will be thrashing and will know a lot more, including whether the number affected is small.

Mr. Gerard Murphy

I will ask my colleague, Mr. Bill Stanley, to address the issue of the balance of the contracts that has arisen in the context of discussions on fairness. I will ask him to go through some of the case studies to provide some illustrative examples. He will also outline how the profit is calculated and KPMG's role in that regard. That might provide some clarity for the Deputy.

Chairman

I ask Mr. Stanley to start by clarifying KPMG's role in the process.

Mr. Bill Stanley

I will do that first and I will then try to address, one by one, the large number of issues that have been raised by members. In terms of KPMG's role, we have asked that company to confirm that the calculation of payments is in accordance with the contracts and that it has been done correctly. We have also asked KPMG to advise us on the scope and content of the commercial statement that we are putting together for the partners. That is the role we have given KPMG and it is very much related to the calculations part of the contract. The scope of its involvement does not extend beyond that.

There is a very important element of context to all of this that I would like to mention but, first, I would like to reiterate what Mr. Murphy said in terms of our belief that the vast majority of our partnerships are working well. That is the feedback we are getting through our local offices but we do acknowledge that there are a number or problematic partnerships. In terms of context, it is important to understand the phase that this portfolio is at and the phases that forestry typically goes through. In the first five years when one plants a greenfield site with new forest, there is a lot of activity and there is a key focus on ensuring that plantation is well established, that all the plants strike and that one gets to what is called "free growing". Typically, that takes the first four to five years. There is then a period of between ten and 15 years when there is very limited activity in the forest. It is really a case of maintenance at that stage, as the forest grows and as it comes to a point where thinning takes place. That is the point when the premiums are payable - the first 20 years of the crop - but the general level of activity is low. A key point to outline here is that our ability to forecast the actual profitability of that crop is relatively limited until we see the growth rates of the crop and until it gets closer to thinning stage. More than 80% of the 630 farm partnerships that we have are still at the stage where the activity is relatively low. That is a very important piece of context. There are a number which have now come through that stage and we have started to carry out thinning. I will talk through the whole process by which we calculate the payments and the annuity payments that are due to our partners in due course but I would like to address a number of other issues first, as they arose.

The issue of exit for the partners was raised. Senator Mulherin asked how many partners have exited or been facilitated to exit. Exit is something that arises for us on an ongoing basis. Partners' circumstances change and these are long-term, typically 40-year agreements. The issue of probate has arisen and is a very real one, particularly in the context of such long-term contracts. We face requests to sell our share of the partnership and also to buy the partners' share of the partnership on a regular basis. We have a clear process by which we evaluate payments that have been made to date, payments that are due and assess those on the basis of our estimate of the profitability of the crop. In quite young crops it is quite difficult to make that assessment. A further complication can arise if crops have to be roaded. These are the types of costs that must be taken into account. To date we have successfully exited approximately ten partnerships by way of us buying out the partner or the partner buying us out.

The issue of shortened rotation has been mentioned. We have already referenced the fact that there are seven different schemes involved here and in six of those schemes, a shorter rotation is advantageous to the partner.

What that means is the partner gets the same level of payment from that plantation spread over a number of years but it is a shorter number of years. Therefore, the individual payments are higher, but the level of profit that accrues to the partner is the same in every case. The one exception to that is the scheme, to which Senator Mulherin referred, where there is a life payment and a guaranteed fixed annual salary, as it is called, in the contract that is payable to the partner. That payment is indexed linked. I would refer the Senator to the case studies we have shown, including one from that particular scheme, which demonstrate that during the course of that rotation Coillte makes a loss on that rotation.

On the issue of Coillte making harvesting decisions, in essence, when it might be advantageous to Coillte to harvest the crops or not to do so, there are three key tests to which we have to live up to in these contracts. We have a clear responsibility to ensure these crops are managed commercially in the interests of both parties. That is a contractual obligation. That is the first test we have. The second test is that it must be done on sound commercial principles, having regard for good silviculture and good forest management practice. The third test is that it must have regard for the long-term nature of forestry. Those are three tests by which we live. In accordance with that, we produce what is called a resources plan. It determines when crops get thinned, when they get clearfelled and what their date of clearfelling is. Bearing in mind that the vast majority of these partnerships have not yet got to the stage where they are being thinned, there is quite some road to travel before the clearfell date, which is the date Coillte sees its return on its investment in those partnerships. The resources plan essentially is drawn up on a case-by-case basis, partner-by-partner basis; it is not drawn up on a portfolio basis, or with reference to Coillte's outputs from its estate. The reason for that is that we have an obligation to maximise the commercial benefits and the interests of both partners in this agreement.

On Deputy Penrose's question regarding where the partnerships are located, I do not have to hand the figures per county. We divide the country up into six business area regions. The spread is relatively even. We have one area in the north west in which there are only 33 farm partnerships. The other five regions typically have an even number ranging from 16% up to 25% of the partnerships. It is correct to say there is a cluster in the Kilkenny-Waterford-Tipperary region and there is one in Galway. Typically speaking, there is a good spread across the country.

Chairman

Are the dissatisfied partners equally spread around the country or are they in one particular cluster?

Mr. Bill Stanley

Our observation is that we have come across two particular clusters in that respect, one in the south Kilkenny region and one in Galway. I draw the Chairman's attention to the fact that we have 630 partners. At any particular time we endeavour to make sure they are satisfied and that their experience of the partnership is good. However, at any particular point in time there may be dissatisfactions and we endeavour to address those. The call log we have set up is quite active. There have been references to that. I wrote to all of our 630 partners. Having regard to the fact that these are long-term agreements, some of them are already more than 20 years old and people's circumstances change. We received back a small number of those letters marked "return to sender" and we are working through those one by one to make sure those letters get delivered to all 630 partners. In addition, we have advertised the call line on our website. We have got it published with the Irish Farmers' Association, IFA, and ensured reference is made to it in various online coverage by agri-media outlets.

Senator Michelle Mulherin

What was stated in the letter that was sent to the partners?

Mr. Bill Stanley

The letter that went out was a very simple one. It was appended to one of the interim reports we sent to this committee. It highlighted that issues were drawn to our attention, that we understood some frustration was expressed by our partners and, in particular, frustration was expressed that when they have questions they do not know to where to turn. In response to that, we have set up this call line. The call line is manned full time by a full-time member of Coillte's staff. It is not manned by a call centre off-site. The first role of the person who answers a call is to assign it as an issue to somebody within the farm partnership team. That may be somebody locally or centrally depending on the nature of the query, whether it is primarily a commercial or an operational query.

Coillte's facilities are customers for between 10% and 15% of the value generated from forests, with the balance sold to independent sawmills that buy the material at market rates. Even the material purchased by Coillte's own mill is bought at the same price as Coillte's own material and is a small fraction of the driver of the value. Every single piece of timber harvested by a partnership, whether through thinning or clearfell, the latter of which has not yet happened, follows a fully auditable trail showing every element harvested, transported, delivered over the weighbridge and invoiced by our customers. No other forestry company can demonstrate that level of transparency and the new commercial statement gives our partners access to that transparency. We will show them the payments they have received and how they have been calculated, as well as the payments which are forecast to be received and how they are calculated. The case studies included in our opening statement demonstrate that there is no question of Coillte taking a huge chunk of value at a cost to the partnership. In the vast majority of partnerships the partner or the landowner receives the majority of the value and Coillte's split is, on average, about 40%. In addition to this, we contend that we are adding to the overall value by a number of means.

For example, we are providing forestry management expertise, access to established market channels to maximise prices, economies of scale and, critically, a form of certification that is almost impossible for individual private forest owners to achieve on their own, given the overheads and level of administration involved but for which we have the necessary scale, and which adds a premium to the end product's price.

Mr. Gerard Murphy

Among her other questions, the Senator asked about the mismanagement of forestry and stated that she was aware of damage caused by contractors. If there is any damage, that should be picked up in the normal communications. As to her question on whether we are making good on damage, the answer is "Yes". We are obliged under the contract to make good any damage arising from operations. I would be disappointed if there was significant damage, but if there is, it should be identified with local management and rectified.

We were asked whether we were contributing to roads in light of the road grants. We facilitate the partner in applying for a road grant in the majority of cases, but we still bear the cost of additional roading in a number of instances. There are examples of us bearing the costs of roads in some of the partnerships that have been mentioned. That forms part of our contribution.

No. Perhaps I should clarify. Of those 60, only a handful - it might be four or five - had already reached the point where their premium payments had expired. We have now rectified that. The balance had not reached the point where their premium payments had expired. We have recognised the issue and committed to ensuring the payment happens a year earlier. It would not be correct to say that the 60 have had a gap year.

The review of payments is designed to happen every five years because that term is the typical thinning cycle. The annuity review essentially happens every year after someone has completed a full thinning. At that stage, a landowner can take into account the actual recorded profit. There is a full audit trail up to the weighbridge at the customer's facility. We must have this paper trail for our certification purposes. We need to be able to show the full chain of custody for the timber from where it grows to where it gets processed, as do our customers if they are to sell the material into their end markets. We reflect the actual profits every five years and the annuity may adjust to reflect that. By the time a landowner reaches the point of clearfelling, the annuity payment should be taking into account all of the actual thinning profits rather than just forecasted thinning profits.

Mr. Gerard Murphy

The Senator also asked whether people were getting a fair price and how that could be demonstrated. Under our system, we have extensive and good markets. Being the largest supplier of round log, we have developed strong markets across the country, including for pulp and sawlog.

Absolutely. Obviously, one will consult with partners. Part of the reason people came into these partnerships was to use Coillte's expertise in making the right decisions around resource management. We pride ourselves on the fact that we make the right decisions as to how both to thin and fell a crop to get the best value at the end of the day. It is not in our interest to make decisions which diminish the value of the crop because that also impacts on the investment we have made.

Deputy Martin Kenny

I thank the witnesses for the presentation and for their attendance on this snowy afternoon. They said legal advice was provided to the people who signed up to these contracts. Did they get independent legal advice or was it just suggested that they get legal advice? Can the witnesses confirm that they actually got the legal advice?

I refer to clarity around the value of the timber and thinning at the time of sale. Many people are reaching the 17 to 20-year point when thinning is or should be happening. Do they actually get a clear statement of the value and volume of timber extracted, where it has been sold and what price has been achieved? Is that provided to them? From what we have heard, that does not appear to be the case.

The annual meeting is being presented as meaning that communication was ongoing whereas my understanding is that it would be a meeting whereby a local forester would go out to visit a farm and say to the owner, "Your trees are doing grand and we will keep an eye on them for you". That is my understanding of what is involved. It certainly would not be considered the type of communication for which farmers were looking. They wanted something more substantial - they wanted questions answered and they wanted to know where they stood, what was happening and where it was going. That type of meeting, which is more of a box-ticking exercise from the point of view of making sure everything was okay, does not fulfil the criteria and to suggest it does is being a little disingenuous on the part of the witnesses. I would like clarity in respect of that matter.

The witnesses mentioned that there was a range of partners up to 2012. How many new partnerships have there been recently? Have there been any and, if not, why not? Mention was made of an offer and I see that just seven partners out of 630 expressed dissatisfaction. To be honest, I do not think Coillte would be here if the figure was that low. If there were only seven people who had a problem, I do not think this committee or anyone else would be making such a song and dance about this. In fairness, it is less than 1%. It does not stack up that only that small number of people would have a problem and it seems more widespread than that. The witnesses suggest that, in some of those cases, Coillte would explore either buying out the partnerships at full commercial value or selling them to a third party. Is Coillte buying land at the moment? If it is not engaged in partnerships, where is it getting new land to plant? I recently came across a situation whereby, as I understand it, Coillte is actually selling land on the international market. What is going on in that regard?

Basically, Coillte's defence is, "We are honest people and we would not do anything wrong." However, we need something a little more solid than that to reassure the public and the people who have these contracts. What has been presented is quite flimsy. I have looked at one or two of the contracts and I have talked to several people who have them. They seem to be all over the place with regard to how well they stand up. Two of the people to whom I spoke certainly felt they were not told they needed to get legal advice or to get their solicitors to look over what is involved and that this was not raised with them at the time. They were presented with contracts, they discussed them a little bit with the people from Coillte and they signed up, trusting that everything was okay. I would like to hear the witnesses' final comments on that matter.

Deputy Thomas Pringle

I have several questions, some of which are linked to those posed by Deputy Martin Kenny. It has been very interesting to hear Coillte's response to the issues raised and I would like to address some of them. Mr. Stanley said that some of the partnership meetings will take place over the phone, which is amazing. I wonder how many of the partnership meetings actually took place by means of phone calls. Will the witnesses expand on that? I do not think many farmers would take a phone call from Coillte to ask how things are going as being a meeting.

In regard to the figures on the seven complaints referred to by Deputy Martin Kenny, the witnesses said that 80% of the grants still have the annual premium from the Department, so I would think the seven cases apply to people outside the grant period. If so, that means there are 126, which is 5.5%, and, therefore, it is more of a problem than Coillte - which is suggesting a rosier picture - is presenting. Is that the case? The figures are making it look a lot better but I wonder why Coillte would be here if just seven people out of 630 were having problems. To have seven out of 126 is a lot more significant. It may even be seven out of 20 who are having a problem, although we do not know. I wonder about that.

In the context of the clusters in east Galway and Kilkenny, Coillte owns processing plants around the country, including in Waterford and Clonmel. Is there any correlation between the clusters that have the problems and the Coillte plants?

We are discussing the problems farmers are having but it seems there have also been problems for foresters dealing with Coillte. I refer to a report published by the timber raw materials supply chain sector on Irish forestry practices and procedures in 2008-2009, with which I am sure the witnesses are familiar. This highlights many of the same problems they had in dealing with Coillte such as, for example, the manner of awarding contracts, the volume of timber to be harvested and the arbitrary and uneconomic rates of payment by Coillte. All of those issues correspond with the difficulties farmers are having. I wonder if there is a cultural trait within Coillte which contributes to this problem. The report states there is ample evidence of non-compliance by Coillte with its forest certification responsibilities, which the witnesses mentioned are important for Coillte regarding its contracts with farmers. Is there correspondence in this regard? Is there a problem within Coillte overall in terms of its dealings with the people it has to deal with, such as farmers, growers, foresters, harvesters and transport people, who may be in here with a problem at some stage in the future? Is there an ongoing cultural problem with which Coillte needs to deal?

Senator Paul Daly

I will be brief as many of my questions have been covered in the earlier exchanges. Based on what I have heard in the two presentations, I would not be very familiar with the issues involved. When does the famous contract terminate? One would imagine it is a one-cycle contract that ends after the clearfell. If that is the case, why are we being told that some of the contracts contain an obligation to replant at the expense and responsibility of the farm partner? If that is not true and if the contract terminates at the end of the clearfell, does Coillte just walk away or is there anything in any of the contracts in the context of returning the ground to its original condition before any trees were planted, similar to the conditions relating to most planning permissions? I suppose that applies down the line in light of the duration involved and the fact that we have not reached the end point. What is the position? We have been informed it is in the contracts that the farm partners have to replant at their own expense and cost? I would like to have that clarified. If that is not in the contract, what are the termination clauses and what is the timescale involved? Although the witnesses said the timescale changes because of improved growth, when the contract was originally drawn up, and allowing for the predicted growth time at that stage, what were the terminating clauses?

Deputy Michael Fitzmaurice

I will address my first point to Mr. Murphy. There is no talk at all about the establishment grant, although Mr. Murphy referred to €20 million being paid out. At the moment, €800 per acre is given twice in an establishment grant. Is that correct? I know Coillte has 12,000 ha involved in the partnerships.

There has been talk that all of this money was paid out. All the private companies at the moment that offer to plant trees and manage them for farmers for "X" amount of years do not do such work for the love of the farmer. There is "X" amount to be earned from such work. If Mr. Murphy from Coillte is honest with the committee here, what is left over in the margin would go a long way to paying the €20 million that he has said Coillte is out of pocket. Let us remember that €800 is paid per acre. We know how much it costs to carry out forestry mounding, fencing, and buying and planting the trees, which anyone can see. Coillte has put forward the idea that it has paid the money to farmers ahead of getting any money back. If one calculates the figures honestly one discovers that the establishment grant will leave enough room and then one adds the number of acres mentioned and one will be financially okay. In my opinion there is no risk involved in that part of the scheme.

Coillte has mentioned how much it pays out each year and we know there are 630 partnership contracts with Coillte. I have calculated that the scheme will involve €800,000 per year or an average payment of between €1,100 and €1,200. Is that fair to say? Mr. Murphy has said that from 1993 to now Coillte paid out €20.3 million but subsequently that figure was reduced to €17 million. I calculated my figures using the first figure of €20.3 million. If one divides that sum by 23 or 24 years and the number of participants then the average total amount paid each year is between €800,000 and €900,000. Is that correct?

Farmers need to know the following in terms of thinnings. If maintenance is not done properly, and in ten, 12 or 15 years an inspector from the Department discovers that trees have not grown will Coillte take full responsibility if any farmer loses his or her grant? My question is fairly straightforward.

There are grants for creating access roads thus enabling lorries with timber forwarders and timber harvesters to access the areas of forest. I have been made aware that Coillte has said that it will not provide such grants for the simple reason that the bonds sought by the council have left the project unworkable. Is that correct?

I have considered the case study provided for between 35 and 40 ha along with the price of land at the moment and have realised that a farmer would be awful foolish to go into a partnership. I have calculated that a farmer would receive between €580,000 and €600,000 from the scheme but he or she will receive €5,000 an acre at present if land is sold. If a farmer sold 100 acres or 48 hectares at €5,000 an acre he or she would earn between €5.2 million or €5.3 million. Is it, therefore, worthwhile to invest in a partnership with the current price of land?

Earlier Mr. Stanley mentioned how Coillte markets its products. In Ireland there are only three or four customers for such products and we talked about them on the previous occasion. A farmer, Coillte or anybody can sell their product to the sawmills owned by Mr. Fahy, Murray Timber Group or Glennon Brothers. One does not need a magic wand to sell. Mr. Stanley also talked about traceability. That does not add to the value of the timber, in my opinion.

I worry about the following. Before Coillte thins forestry does it consult the farmer? Does it say, "Michael Fitzmaurice has a timber forwarder or cutting equipment and it costs so much a tonne to cut and transport the product to the road, Joe blogs will supply a lorry to transport this, we will bring the product to a weighbridge and the owner will be forwarded with the tonnage within a week or two weeks." Unfortunately, that scenario has not occurred and many people are vexed about the matter.

There is another problem that I know exists in parts of Galway. We spoke about the matter earlier and I heard the delegation members mention Galway and Kilkenny. I mean instances where pine was planted on average ground but it has grown crooked and is now only good for pulp. Down the line that situation will cost people money. Realistically, when all of their expenses are taken out of the equation it will cost them money to replant such ground.

At the beginning of a partnership one receives an establishment grant. Coillte may have a few quid left over that will make participants happy and I refer to the front-loaded bits, which covers expenses. There is not huge maintenance required or a huge number of meetings involved when it comes to growing a forest. Is there not a case to be made for the people who joined in good faith? I do not blame Coillte for the timber not growing properly because in the past timber was planted in unsuitable locations. When timber was planted in boggy ground it just grew in every direction. Earlier Mr. Murphy said that everything was sound legally and Coillte ensured, like the HSE and every other State and semi-State body, that it came out fighting and declared it did everything right. I would question whether people were advised to seek other advice. Let us remember that it was not the norm to seek other advice at the time. I shall take Mr. Murphy at his word that Coillte was legally belted up well and that everything was good.

Morally, is it right if someone embarked on a scheme in good faith but the timber has not grown? I do not blame Coillte for the timber not growing because growing timber at that time was a totally different game than it is now. Such people are left with ground that will not yield a return and they must pay the cost of replanting. Let us remember that it is the State that paid the grant to the farmer and not Coillte. In addition, Coillte received the establishment grant that covers many problems and costs encountered along the way. Thinnings have been collected that would not have been documented. Therefore, is there a moral obligation on Coillte in this instance?

I wish to outline a concern. How does Coillte deflect the following concern? A felling licence lasts for a while. Is that right? An application for a licence must be signed by the participant and a licence may last for two, three or five years. In the private sector of forestry people are worried that Coillte will keep its own products or properties when forestry is cheap and approach Johnny and Mary who signed the docket because they signed it on a certain day but it may apply down the line. How does one counteract such a situation? Those people are vulnerable because Coillte can do such a thing. There is no point in Coillte saying that it cannot do so. Should a clause be included in the felling licence that the product will be sold when the price is good and not when it has plummeted? Why is that option not available to the people involved?

Finally, I want to know whether the following is true. Has Coillte sold a large amount of forestry to some other entity?

Mr. Gerard Murphy

Senator Paul Daly asked whether there was an intention to give legal advice.

I reiterate that all reviews of the files we have seen show that all farm partners had independent legal advice in both the contract formation and signing.

I will ask Mr. Stanley to reply to the question on what Coillte is doing regarding the value of timber. While we have covered this issue, perhaps Mr. Stanley will address it in more detail.

Mr. Bill Stanley

The issue is probably best addressed by the proposed commercial statement. To add to Mr. Murphy's response on the issue of legal advice, Deputy Martin Kenny stated that Coillte had indicated that legal advice was given to the partners. That is not correct, and if we made such a statement, it was incorrect. Having gone through our records, they show that each partner had independent legal advice paid for by the partner. We did not give partners legal advice at any stage.

On the value of timber, the commercial statements we are producing for our partners will detail a number of matters. They will summarise the contract, set out payments that have been received to date and the basis on which they were calculated, and detail future payments based on forecasts. The basis for the calculated forecasts will include the volumes of timber we expect to extract and the years in which we expect to extract them.

Mr. Gerard Murphy

On the way in which the annual meeting works and the question as to whether it is a tick-box exercise, I ask Mr. Nolan to explain the process that applies to annual meetings.

Mr. Pauric Nolan

Why does Coillte not go into partnership in the second round if it is so good for everyone?

Mr. Gerard Murphy

Farm Foresty Partnership Agreements: Discussion

Mr. Joe Healy

Mr. Joe Healy

Mr. Pat Collins

Mr. Nicholas Sweetman

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Nicholas Sweetman

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Pat Collins

Mr. Nicholas Sweetman

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Pat Collins

Mr. Pat Collins

Mr. Pat Collins

Mr. Damian McDonald

Mr. Damian McDonald

Mr. Nicholas Sweetman

Mr. Pat Collins

Mr. Pat Collins

Mr. Joe Healy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Pauric Nolan

Mr. Pauric Nolan

Mr. Pauric Nolan

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Bill Stanley

Mr. Gerard Murphy

Mr. Bill Stanley

Joint Committee on Agriculture, Food and the Marine debate -
Tuesday, 27 Feb 2018