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Seanad Éireann díospóireacht -
Wednesday, 26 Nov 1997

Vol. 152 No. 15

Adjournment Matters. - Forestry Industry Investment.

I welcome the Minister and appreciate the opportunity to express my concern about the value of afforestation.

I live in a county which has developed a substantial acreage of afforestation. When the State was founded, de Valera stated that if the marginal land throughout Ireland could be developed the economic survival of the people would be assured. Bearing that in mind, I had high hopes when proposals were made to develop forestry on marginal land or land not suitable for agriculture. In recent years much has been achieved, thousands of acres of forests have been developed and millions of pounds of European aid have been spent.

Everyone is aware that there is a substantial acreage of mature forest in existence at present. We have moved away from the notion that Irish timber is second class, that it is not up to standard or that it could not be used for domestic or commercial purposes. However, we have learned to become professional producers of timber which is important. I welcome that we can now produce quality timber. Everyone recognises and values that achievement.

When Coillte was established, I was enthusiastic about its potential and believed we would begin to reap the potential benefits of the timber industry. However, I was disappointed because many of the senior staff and officers working for the Department of Lands obtained employment as timber buyers in the Republic for Northern Ireland companies. Perhaps that was a wise approach on their part because timber mills in Northern Ireland could not survive without supplies from the South. In my area there is a consistent daily traffic of lorries drawing substantial loads of timber from the South to the North.

Are we obtaining maximum value and providing employment in this industry? From my investigations I have discovered that we are obtaining little or no return because the three large timber mills in Northern Ireland employ their own workers to harvest timber in the South. Not only that, our Government provided substantial grant aid to timber harvesters which are costly pieces of equipment. Perhaps the Government was right to do so under EU regulations but in my area four timber harvesters were purchased by people from Northern Ireland. I do not object to their doing so because I do not have a partitionist approach. Nevertheless, I share the disappointment of those who believed that employment in the timber industry would increase.

People in the community in which I live are alarmed to see numerous lorry loads of timber leaving the State without any added value. In fact, this is very much to our disadvantage. The small county roads which run through our local forest are being seriously damaged. The lorries transporting timber use what are called "jacks" to withdraw that timber from the forest. The lorries park at the side of the road where the jacks are anchored thereby causing serious damage. We have received no reimbursement in respect of this damage from the Department, Coillte or any other body.

The lorries which collect timber do so on a Saturday and the local people were so concerened that they monitored the collections. There is an unorthodox method of checking lorryloads of timber out of the woods. In Meenglas Wood near Ballybofey, Coillte had made arrangements whereby a small box was nailed to a tree and those leaving with loads of timber would write a docket and put it in the box. On one day local observers checked the box after three lorries had gone through and found only one docket there. I rang the head forester about it and he said "I thought you no longer believed in folklore". He was nasty.

I have no alternative but to raise this matter in the House and make the Minister and his officials aware of the loose and unacceptable arrangements which apply. There is concern that added value to the timber industry is being excluded and that the methods for checking the timber being taken from woods are inadequate. I ask the Minister to put in a place a satisfactory method. Many people are concerned about the loss of jobs, the loss of timber and the unfulfilled expectations of added business.

An article in yesterday's Irish Independent pointed out that Coillte is to take shares in timber mills in the North and that the Irish Timber Council intends to veto that proposal. I support the timber industry in strongly opposing that move. If Coillte was to take such action small local producers and sawmills will be put out of business. A plan for a timber processing factory in Ballybofey was refused because the Department could not give a guarantee that timber would be available. The Minister must allay the concerns of those who believe that the timber industry must be put back on the rails.

The Senator expressed his alarm to see timber exported without value added to the product. There are several ways in which timber is exported at present with value added. The Senator was concerned about the collection system on Saturdays and mentioned Meenglas Wood near Ballybofey in particular. If the Senator could provide me with any further information he might have I will have the matter checked. The Senator also referred to Coillte; there is a proposition under consideration at present and I cannot comment on it at this stage.

I thank the Senator for affording me the opportunity to speak about this most important topic. I am keenly aware of the need to encourage investment in this sector and to achieve a substantial and sustained return on that investment. The structure and scale of Irish forestry have seen dramatic changes over the past decade. Total annual afforestation increased from a level of some 7,000 hectares per annum in 1986 to almost 24,000 hectares per annum in 1996. Over the same period private forestry increased its share of total annual afforestation from 33 per cent to 73 per cent and farm forestry has emerged as a major new component of the sector.

The importance of the forestry industry is underlined by the fact that Irish forests supply around 60 per cent of domestic requirements for structural and construction grade timber while exports, comprising some 250,000 cubic metres, consist mainly of pallet wood destined for the UK market. An estimated 16,000 people are currently employed in the forestry industry and the wood products sector. Of these, 7,000 are employed directly in forestry.

The return on investment from the forestry industry may be considered under two headings — the return in investment from forestry itself and the return on investment from sawmilling. The returns from investment in forestry depend on the potential of the land for growing trees, on the cost of establishing, managing and harvesting the crop, on the availability of markets and the price which may be obtained for the timber. Agricultural crops are generally planted and harvested within one year. With forestry, on the other hand, although the initial financial return from thinnings can become available after about 20 years, there may be a time lag of 40 years or more between planting conifers and harvesting and the time lag is substantially longer for broad-leaf species.

Expenditure on a forest crop is highly concentrated in the early years and the greater part of the income comes at the end of the rotation. It is estimated that, based on current costs and prices, a hectare of conifer forest would produce approximately £12,000 of timber over its rotation of 40 years, representing a return of 4 per cent above the likely rate of inflation.

In recognition of the lead-in time, my Department operates a generous afforestation grant scheme and forest premium scheme which extend over 20 years for farmers and 15 years for non-farmers. When grants and premiums are taken into account, depending on the status of the land-owner and the composition of the plantation, returns of up to 15 per cent can be achieved.

In the future, development of new production and processing technologies should reduce costs while forecasts of demand growth indicate that timber prices will grow in real terms into the next century, thereby increasing the return. Historically, Irish timber prices have risen in excess of inflation. It is worth noting that investment in broadleaf forestry yields lower returns because of the long rotation periods, but the environmental benefits can be higher.

I wish to refer to the question of the return on investment from sawmilling. This sector has been subject to significant over-capacity in recent years leading to increased prices for limited supplies of sawlogs. I understand from a review of the investment profile over the past five years of the top seven sawmills in Ireland that three of the largest invested £8 million to £9 million between them. In relation to the return on that investment, the most recent information is available from the McKinsey report of December 1996. This report was prepared for Coillte Teoranta in 1996 and provided recommendations on how reserve log prices should be calculated for the purpose of introducing Coillte's new log sales system. The report stated that "In many cases and notwithstanding strong roundwood prices, mills appear to be generating positive cash margins".

The conclusion that can be drawn from the sawmills' willingness to invest in new processing capacity and the McKinsey report finding is that, while the sawmilling sector has not generated spectacular returns due to intense competition for logs and intense competition in both the Irish and UK markets, above average sawmill operators have earned acceptable returns.

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