FORESTY: GETTING THE INCENTIVES RIGHT

From every angle, Scotland’s forests are a huge asset to the UK’s economy. Besides supporting over 25,000 jobs in Scotland and adding almost £1 billion to the Scottish economy, Scottish forests and the Scottish saw mills provide over 70% of the UK’s domestic sawn timber.

The waste from both harvesting and milling feeds the burgeoning biomass heating and chipboard manufacturing industries, while the growing trees in a well-designed forest aid bio-diversity and lock up carbon for decades, thus helping the UK to meet its carbon reduction targets. On top of all this, productive forests have proved to be one of the UK’s top performing asset classes for investors, returning over 10% per annum in recent years.

Yet despite all that it has going for it, Scotland’s forestry sector faces a looming crisis. This is a sector with a 35 to 40-year planting-to-harvest cycle. Changes in the government’s incentives regime that began in the late 1980s, coupled with an overly cumbersome and slow approvals process for proposals for new forests, created a slowdown in plantings. This will come home to roost by the midto late-2030s and is going to create some future pain for the Scottish forestry sector, come what may.

Stuart Goodall, chief executive of Confor, the not-for-profit membership body for sustainable forestry and wood-using businesses, makes the point that the task now for the Scottish Government, the Forestry Commission and the industry in general, is to get the rate of new plantings back on track as fast as possible.

Significant steps have been taken to address this. The current incentives regime provides generous grants for new planting, while investors in forestry benefit from the fact that the cash that is generated when trees are harvested and sold, is free from capital gains tax (CGT).

The only exception to this is the land the trees are grown on, which, if sold, does incur CGT. By placing the proceeds from forestry outside the CGT tax regime, the government has created a very lucrative tax free investment vehicle. The creation of productive new forests, however, has been slowed over the last few decades by the cumbersome nature of the planning and approvals process.

However, Goodall points out that after years of sustained lobbying by Confor, the Scottish Government, largely through the efforts of Fergus Ewing, the Cabinet Secretary for Rural Economy and Connectivity, has taken steps to improve and streamline the planning and grants awards process for new plantings.

“We have been raising this problem, as Confor, for more than a decade now. The dip in available domestic forests to harvest is going to last from the late 2030s through to the late 2060s or 2070s. It is going to take that long for production to start to rise again, given the 30 to 40 year growing cycle for softwoods in Scotland,” he comments.

Goodall explains that as things now stand it can take up to three years for applications for grants for new plantings to be approved, or for approval for a change of use of farm land from rough grazing to forestry. The approvals process goes through the Scottish Forestry Commission which, as legislation currently stands, has a duty to hear the views of all potential stakeholders before deciding on the application.

“The problem with this approach is that as a general rule, people do not like change. So new forest creation proposals almost always run into objections even when it is demonstrably clear that the end result will be very beneficial both to wildlife and the local economy. We see instances where there is almost no bio-diversity on the land and where it is obvious that a welldesigned forest will bring a huge increase in biodiversity, yet people still protest that it will disrupt wildlife. As Confor, we argued that we needed someone with deep experience in, say, planning applications for local housing, to come in and advice the Forestry Commission on how it can improve its processes,” he explains.

Fergus Ewing brought in Jim MacKinnon, a former chief planning officer for the Scottish Government, who produced a report working in conjunction with Confor and the Forestry Commission. The report makes a number of strong recommendations and Goodall is hopeful that this will turn out to be the final piece in the jigsaw to enable the government to hit its planning targets of seeing 10,000 hectares of new forest planted annually in Scotland over the coming years.

Another key reason for the 2030 dip is that while fresh incentives for planting were put in place soon after the grant regime was scaled back in the 1980s, the new regime’s focus was on encouraging largely broadleaf forest production. A tendency to overplanting dense spruce and syka conifers through the 1960 to 1980s led to a sense that this was damaging the landscape and squeezing out Scotland’s native broadleaf.

However, as Goodall notes, the planting schemes that developed as a result of this “backlash” tended to create largely unproductive forests. Scotland’s climate is not one that allows it to compete against imported hardwood. The growing cycle for domestic hardwood broadleaf trees is far too long here to make for commercially viable plantings.

“We proposed three and a half years ago to the Forestry Commission that instead of encouraging the creation of unproductive and – for owners – very expensive broadleaf forests, the Commission should be focused on encouraging well designed schemes that were at least 60% productive softwood and no more than 40% broadleaf and Scots pine. This point has now been taken, but given the dip in production that we are facing it was very frustrating that crucial years of potential plantings were wasted,” he notes.

Confor and its members knew that they had some thirty to thirty-five years before the problem of under-production started to bite. So every year of underplanting means that the forestry industry is going to have to work that much harder to keep local saw mills fed.

Goodall points out that Scotland’s saw mill sector, which is one of the most advanced in the world, is completely dependent upon a steady flow of local timber. “Every wood producing country has its own saw milling infrastructure. Logs are very bulky and no one wants to transport them more than 50 miles from where they are felled.

“It is just not economically viable to import raw logs and mill them here, versus importing sawn timber. So, the future health of our saw mills and all the jobs and added value they create for the economy, is completely reliant on local supplies of harvested trees from our own sustainable forests,” he says.

“It is just not economically viable to import raw logs and mill them here, versus importing sawn timber. ”