It has been an astonishing year for the forestry market, according to the UK Forest Market Report 2020 from Tilhill and John Clegg & Co. Fraser Rummens reports.

THE Forest Market Report includes all publicly recorded completed sales of, primarily, commercial conifer forests greater than 20 ha. As with almost every other event in the past 10 months, the launch of the 22nd edition of the annual report took place virtually, with a Q&A session at the end.

Welcoming attendees to the event, John Lambert, senior director, John Clegg & Co, said: “It has been an extraordinary year; we have had the challenges of COVID-19 to deal with, but the market has continued apace.”

John handed over to Bruce Richardson, head of investment and property at Tilhill, who would run through the results of the report. “We’ve been running the report for 23 years, so we’ve got a substantial database,” he explained. “It’s got over 1,800 transactions, just under £1.5 billion in value and slightly under 300,000 hectares over that period.”

However, John noted that any individual year’s data is based on a relatively small sample size and thus can be influenced by larger transactions. “It reflects what is actually sold in any one year, so with a different mix of properties in every year, care is needed in year-on-year comparisons.”

The publicity for the 2020 report has described it as an ‘astonishing year’ – but in what way? John explained: “Frankly, it has been a record-breaking year. At £200 million of total value of the market, this is the largest that we have seen in our 23 years of the report, and it is up 58 per cent from last year, which was at £126 million.

“The area sold has increased – that is now at around 12,500 hectares, again up 13 per cent from last year, but actually that is more or less in line with our 10-year average. We’re roughly on average for the number of stocked hectares but considerably higher value.”

Forestry Journal: Like many events in 2020, the launch of the UK Forest Market Report was an online affair.Like many events in 2020, the launch of the UK Forest Market Report was an online affair.

As usual, Scotland dominates with 69 per cent of the year’s sales by value. This was to be expected. Slightly less expected was south of the border, where only one substantial commercial property was sold in the year, taking England down to five per cent of sales. “We’d normally expect them to be about a quarter of the market.” Wales, at 25 per cent, was much larger than normal.

“It’s a smaller sample size – only 61 properties (16,595 ha (gross)) – and we would usually average around 80, which I think is a reflection on the lockdown. It was actually harder for large chunks of the year to get out and look at forests on the market.

“Despite that, the actual stock area has increased. Is this despite Brexit and COVID-19 or is it perhaps because of it?”

Generally, the unit price of forestry will move in line with the value of timber, but that hasn’t happened this year. “It will be interesting to see where we go next year, because we’ve certainly seen quite a bit of volatility in timber prices in the last year or two,” Bruce remarked.

“One interesting thing though is despite trying to see those things moving together, overall, the unit value of forestry sold in the last 10 years has gone up by 240 per cent, and that’s double what the timber index has done, which is go up by 100 per cent.”

The unit value of properties in this year’s market has risen considerably from last year. This, Bruce explained, is partly due to the mix of properties but also it has been a very competitive market. “Again, is this because of COVID-19 or is this despite of it? I don’t really know.”

The average price per stocked hectare has risen from £11,749 last year to just under £16,000 (£15,962) this year – a considerable jump. What has been most surprising is the price of younger forestry. “We would logically expect that the unit price of a hectare of forestry would increase as the volume of timber in the forest increases … What you can see is quite a smooth curve at the age of 1–10 years now now reaching around £28,000 per hectare, and a smooth run-off as you get closer towards more mature forestry.”

Prices for older age groups (30–40 years, 40 years and above) have remained stable in the last year or two. “That is not surprising. With those sorts of forests, they are more or less mature, so we’ve got a known quantity of timber, we know in the short term what timber prices are likely to be. It’s much easier to put a more accurate price onto those.”

Forestry Journal: Ece Özdemiroglu’s presentation focused on the fact that forestry investment can be financially, environmentally and socially sustainable.Ece Özdemiroglu’s presentation focused on the fact that forestry investment can be financially, environmentally and socially sustainable.

Moving on to the mixed woodlands category (measured in acres), John said: “The majority of interest in this type of woodland is in England, with south England dominating, and that is reflected in the price. So, £5,300 as an average price per acre in England. Considerably less in Wales, and much less so in Scotland.”

The market was very quiet during the first lockdown but rebounded quickly, with demand not substantially outstripping supply, John added. “There are a wide range of owners’ interests in here, so it is a much more heterogeneous market. And it’s much more difficult therefore to generalise figures in this market segment.”

With regard to this year’s planting figures: “After very good progress last year it is slightly disappointing to see that this year we planted more or less the same, around 13,300 hectares, and we haven’t moved very swiftly towards the 30,000-ha-a-year target.

“England has seen a big increase up to nearly 2,500 hectares last year, which is very encouraging, but 90 per cent of that was in mixed woodlands so England is showing little progress in commercial forestry. That’s slightly worrying; I think investors look at that 90 per cent mixed woodlands figure and ask themselves if England is really interested in commercial forestry? ‘Would I be better taking my money to Scotland where I am clearly going to be welcomed?’”

Wales was very disappointing, with only 80 hectares planted. However, due to considerable improvement in the grants and systems use, “we would expect to see a massive change in that when we are reporting that next year”.

There has been substantial interest from people who are planting for carbon objectives on all scales. “Carbon investors are looking with more mixed environmental–social governance objectives, so they’re happy to take on more complex schemes and that is going to make planting in some of the more sensitive areas more viable because they aren’t looking for strong commercial returns and are happy to get involved in peatland restoration or biodiversity improvements and so on,” said Bruce.

The hectarage of UK woodland validated under the Woodland Carbon Code rose 60 per cent year on year in 2019 to 9,372 ha.

Forestry Journal:  Fenning Welstead noted that, at the current rate, it would take 16 years to increase UK forest cover by one per cent. Fenning Welstead noted that, at the current rate, it would take 16 years to increase UK forest cover by one per cent.

Fenning Welstead, director at John Clegg & Co, in his presentation reflected on the issue of tree planting. “We know that Britain is very under-forested compared to the rest of Europe. We know that in Britain the percentages are low – England is desperately low in terms of woodland cover; south-west Scotland is probably 30 per cent cover. And we also know that while we would like to have lots of Sitka spruce to feed the factories, provide us with toilet paper, cardboard packaging, housing and so forth, we don’t want every wood to be a wall of Sitka spruce.”

Putting things into startling perspective, Fenning noted that UK forest cover is only 13 per cent and 1 per cent of the UK is about 240,000 hectares. “Therefore, to raise the cover by 1 per cent at 30,000 ha per annum takes 8 years and we are only achieving half that figure, so we are 16 years at the present rate to get cover up to 14 per cent.”

Forestry Journal: Stuart Goodall of Confor examined the outlook for forestry in the UK.Stuart Goodall of Confor examined the outlook for forestry in the UK.

Stuart Goodall, CEO of industry body Confor, examined the outlook for forestry in the UK. “If we start to look ahead in terms of future commitments, in Scotland I’m really pleased to see that we are expecting there is going to be over 12,000 hectares of planting taking place this year. We are seeing perhaps 22,000 hectares of interest in planting coming through the pipeline and the government has set a funding commitment of 18,000 hectares of new planting by 2025,” he explained.

“In England, they want to deliver 30,000 hectares of planting across the UK, they are developing an England Tree Strategy and there is £650 million of funding to be made available in a Nature for Climate Fund, which will also cover peatland restoration. So, that is delivering an intent; what we then need to see is planting happening on the ground, and one of the big challenges they’ve got there is if you have money to invest, you’re tempted to go to Scotland where you feel there is a proven ability to deliver.

“Looking at Wales, there has been a strong aspiration for some time, 8,000 hectares a year. 80 hectares was the delivery, but what is really positive is that the Welsh government is starting to put money where its mouth is and making significant funding available. And that funding is being very quickly spent, showing there is an appetite there, and hopefully we will see a big uptick there in the coming years.”

Ece Özdemiroglu, founding director of Eftec, reported on how investing in forestry is financially, environmentally and socially sustainable. Ece said: “Forests are an excellent example of how natural capital provides a multitude of benefits – not just for the owner, but also for the rest of the society.”

Forestry Journal: Sir William Worsley warned that forestry is not a silver bullet for carbon sequestration.Sir William Worsley warned that forestry is not a silver bullet for carbon sequestration.

Sir William Worsley, chair of the Forestry Commission and woodland owner, reported on the rising profile of woods and forests in the current social, political and environmental landscape. He noted that despite forestry’s carbon-sequestration benefits, it is not a silver bullet. Rather, it is a contribution in the medium to long term. He said: “There has been plenty of discussion in the media recently about what is the best woodland to plant for carbon and quite frankly, the answer is all, as long as the species are well matched to the site and the site is appropriate for planting.

“When looking at the full story of forestry’s contribution to reducing greenhouse gas emissions, you also need to consider the role of harvested wood products. Wood products continue to store carbon throughout their life in use and can save further emissions if used for generating heat and electricity at the end of their service life. Extending the service life of home-grown timber through more timber in construction, for example, can contribute to meeting carbon targets. Wood products also contribute to meeting carbon targets by substituting materials which have high emissions associated with their production, such as concrete, steel and aluminium.”

Forestry Journal: John Gallacher said the onus was on the forest industry to promote its benefits.John Gallacher said the onus was on the forest industry to promote its benefits.

Rounding out the presentations was John Gallacher, forest ecologist at Tilhill, who said the onus was on the forest industry to promote its benefits and change the sometimes-adverse perception of commercial woodlands. He said: “We need to seek balance. The three-legged stool that forestry sits on is sitting firmly on the environmental, economic and social benefits, and truly sustainable forestry has to reflect those benefits. However, the rejoinder there would be that this balance varies by site and by the owner’s objectives.”


Q: Is there potential to blend farming and forestry support systems into a land-use package?

A: Sir William Worsley: The key to this is the new Environmental Land Management Scheme, which is in the process of coming out, and the concept of that is to look at the whole holding. If that is the case, yes, I think it is important that we don’t split agriculture and forestry because in England it is totally intertwined. I am both a farmer and a forester. I have farm woods, I have larger blocks of more commercial forestry, but it is the same holding and they need to be managed in the same way, and it is absolutely key that we are able to use the Environmental Land Management Scheme to get our woods into management, because one of the things I find most disappointing is the under-managed woods that we have in England, particularly our broadleaved woods, which we really do need to focus on and bring into management.

Q: The commercial forestry market has performed very strongly in 2020 despite the pandemic. Many purchasers identify carbon as a factor in their decision to invest. Do the panel consider this to be a strong driving force in acquisitions and how is the carbon element of the price valued?

A: Fenning Welstead: The first thing to say is carbon payments are only applicable to new planting, so the sector of the market that might pay most attention to that would be those buying bare land with the hope of planting approval. However, I am beginning to wonder whether this is a sustainable position and ultimately all woodland will receive some money for absorbing carbon. The yield class of restock crops is considerably higher than the new class of the original crops. That, by any definition, is additionality. So, yes, while new planting it definitely is a factor, quite how people are valuing it of course I think is in the eye of the beholder. Some of the carbon contracts were 40, 50 or longer years in time and you sold them at a lump sum up front, probably based on the current carbon price of a few pounds per tonne. That meant the woodland owner was taken completely out of the future of the carbon market. What we’ve seen this year is the price steadily rising for the English auctioning of carbon, and most woodland owners would want to benefit from that. Now, there is an ability once you have validated your new planting that you can sell either all or part of it to give you a phased capital receipt, but the development I would really like to see with carbon is the ability for an annual payment. You could see that encouraging farmers to consider trees much more positively because farmers need an annual income. In terms of how it is being valued at the moment, I think it very much depends on how you look at it, what price you put on the carbon per tonne and when you think you might sell your validated crop.

Q: Are the current carbon incentives on offer for commercial growers fit for purpose in encouraging the dramatic increase in planting the government and society expects?

A: Ece Özdemiroglu: I think that the carbon markets remaining voluntary is not going to be enough to incentivise enough planting, but I don’t know what the plans are for making that trading mandatory or at least certified and accepted. But I think there is room for learning from other experiences and the more the markets are developed, the more the prices will become closer to the kind of guidance prices that the Woodland Carbon Code is providing and creating more incentives.

Q: The geographic variation in the value of mixed woodland makes sense. However, do you believe that the changes expected in agricultural policy will drive a further increase in this category, especially in Scotland where the value appears to be below creation costs in some cases?

A: Tim Liddon (forest manager, Tilhill): I think the value of these mixed woodlands is really related to the ‘I want’ factor and certainly Scotland provides good value, primarily because of the lower population, whereas in the South, the values are significantly greater, land is significantly more expensive and there are more people chasing it.

Q: Will the increase in forest values be sustained into future years?

A: Edward Daniels (head of forestry, John Clegg & Co): I think the groundswell of support for forestry, natural capital and interest in this sector will maintain a strong interest in commercial forestry and mixed woodlands. We’ve had an extraordinary 2020. Can it continue? I don’t know, is the answer, but I think people and investors believe that there is going to be future value in some of the unknown revenue streams which will come from a piece of commercial forestry, mixed woodland, new planting ground or some sort of restoration project, so I think there is further value in there, but I can’t see it continuing at the rate it has done in 2020.

Q: What are the main barriers to reaching the planting targets and what is needed to remove them?

A: Stuart Goodall: We’ve achieved significant areas of planting in the past but that doesn’t mean that suddenly we are looking to plant every area of the UK. The key things for me are there is a lot of suitable land out there, there is a variation in terms of site sensitivities, but if we approach this on the basis that there is a real imperative around tree planting here, that we are going to have some trade-offs and it’s how do we manage those trade-offs and ensure that’s at the right balance. When you look at it in that context, I think there is an awful lot of land available. The challenge is it’s owned by people who we have to encourage to want to plant.

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