Do not mess with forests.
This was one of the more surprising lessons the Coalition learned during its first year in government as it floated the idea of selling off of state-owned woodland before environment secretary Caroline Spelman was forced into an apologetic and cringeworthy climbdown.
Back in October 2010, privatising by 2020 around half of the 640,000 acres of public forests maintained by the Forestry Commission must have seemed – to someone at least – like a decent idea for generating much-needed cash in straitened times. The problem was almost everyone else – from the National Trust to the Socialist Workers Party – disagreed.
By February 2011, the plan was scrapped in somewhat embarrassing circumstances, with Spelman admitting: “We got this one wrong.”
Instead, the government launched an independent, panel-led review of forests in England, which published its final report earlier this month.
Risky enterprise
Against such a febrile backdrop, dabbling in forests would appear to be a risky enterprise for landowners and investors. The public is engaged in an emotional relationship with woodland and is seemingly united against change.
Yet change is undoubtedly afoot. So what does the future of forestry policy look like, and how will this affect landowners and the broader property industry?
The Independent Panel on Forestry was set up immediately after the government climbdown on sell-offs and was led by the Rt Rev James Jones, the Bishop of Liverpool. Its recommendations include a significant increase in the overall level of forests in England, from 10% to 15% of England’s land area by 2060.
Jones says: “There is untapped potential within England’s woodlands to create jobs, to sustain skills and livelihoods, to improve the health and wellbeing of people and to provide better and more connected places for nature.
“Most importantly, the public forest estate needs to be free from the electoral cycle, for trees have long lifecycles – decisions taken now are looking to a future that is 50, or even 100, years down the line. And the bodies managing the public forest estate and advising woodland owners need to evolve and be free to become much more entrepreneurial.”
Sustainable ideas
The creation of more woodland represents a challenge, considering competition from other possible uses. According to the RICS, which says it welcomes the panel’s report, there needs to be some thought paid to how private landowners can generate income to make the new forests sustainable.
“We support the idea of more forests but there needs to be recognition of the commercial factors that would encourage that,” says Jeremy Blackburn, head of UK policy at the RICS. “Around 75% of forest in England is in private hands. So while this debate started from a debate about the Forestry Commission, it’s now moved on to a much bigger debate about the whole forestry sector and changes to the various levers that affect it.”
Ownership of English forest and woodland is spread across a wide range of parties. According to a regularly quoted late-1990s survey by the Forestry Commission and quoted by the independent panel, the public forest estate represents around a fifth of the total, while almost half is owned by individuals and family trusts (see chart). Winning over this latter group, as well as the businesses and pension funds, which own around 15% of forests in England, will be important in achieving change.
The panel has recognised the importance of private owners in the process of managing England’s forests. The report proposes an enlarged Forest Services regulatory organisation, which would work with private landowners to help them manage their woods and increase timber production.
Management of forests can include thinning, restocking or managing grazing – measures that ultimately lead to more productive forests. Better management by private owners would help satisfy demand for products such as woodfuel, which is more sustainable and less vulnerable to price spikes than oil and gas.
The panel recommends that the amount of forests managed to the recognised standard should rise from 50% to 80% of the total during the next decade. RICS’ 2010 Rural Vision report says improved management could help the rural economy, increase the relatively low level of timber produced from UK sources and help to mitigate against climate change.
Growth in demand
With policy moving towards creating a greater number of better-managed forests, how will this affect landowners and investors in the years ahead? Forests are already a strong asset class, attracting investors looking for a safe haven or long-term play. There is every chance this demand could continue to grow.
“Prices for woodland are increasing because it’s very tax-efficient, it’s a safe place to keep money and because of rising demand for woodfuel. Some silly prices are being paid,” says Jason Beedell, head of research at rural property specialist Smiths Gore.
Peak values in excess of £10,000 per acre have been achieved for small quantities of woodland in recent months. This compares with an average farmland value of £8,700 per acre – a figure that has risen by 14% year-on-year in 2012.
Meanwhile, a UK pension fund recently sold two forests on the Scottish Borders covering 1,625 acres for more than £10m. Raymond Henderson, partner at Bidwell’s Perth office, which advised the seller, says the deal “proves the continued attraction of productive forestry as a tangible, green investment, which benefits from significant tax incentives”.
Uncertainty over future policy could harm investment, but most agents are optimistic about certain key drivers for growth.
“The biomass industry has pushed prices for softwood at an unprecedented rate. The industry is buoyant and investment may well be worthwhile for that alone if there is sufficient confidence in the continuing subsidy,” says Ralph Collins, a partner at Carter Jonas.
Whatever policy outcomes emerge from the panel’s recommendations, the government will be keen not to reignite the controversy over forest sell-offs. As such, it will no doubt take its time to offer a response to the report and will seek to avoid another run-in with the rural lobby.
De-risking forests
Although demand is strong, increasing the level of actively managed forests is likely to require some creative thinking in order to encourage new investors to enter the sector.
Creating and managing woodland is a risky task, especially in the early years, because of the requirement for a woodland planting grant and the intensive work required in planting saplings and maintaining the site, which is usually undertaken by a specialist contractor.
A future role for the Forest Services organisation suggested by the panel could include that of facilitator, servicing forest sites in advance before offering them up in “oven-ready” state to the private sector.
Jason Beedell head of research at rural property specialist Smiths Gore, says: “If you can de-risk it for investors, you will see more wanting to get involved. It’s an attractive sector, like farmland, because it’s perceived that capital values are rising but there’s not enough supply. This sort of approach would help change that.”
