There is a real buzz about forestry in Scotland right now. Last week, the Scottish Government comfortably achieved its annual planting target of 10,000 hectares. In total, 11,200 hectares were planted, up from 7,100 hectares the year before. Scotland now accounts for 84 per cent of all new UK planting and that percentage is likely to get higher because in the longer term, Scottish planting targets are even more ambitious.
The official target stops at 15,000 hectares by 2025, but Fergus Ewing, Cabinet Secretary for Rural Economy, has backed a 2030 target of 18,000 hectares set by forestry and wood trade body Confor.
Mr Ewing and his colleagues have realised forestry can deliver for the economy and the environment. Targets are closely linked to delivering on Scotland’s ambitious climate change agenda. In simple terms, growing trees soaks up carbon and wood products lock it up. That policy link has always been very explicit in Scotland, unlike the rest of the UK, where planting is flat-lining.
This means forestry in Scotland is an increasingly interesting option for investors. Two days before the new planting figures came out, Turcan Connell hosted a Scottish forestry investment seminar at Westminster for those interested in finding out more.
There was a clear message from Drew Hendry MP, SNP spokesperson on business, energy and industrial strategy at Westminster – Scottish forestry is open for business, and offers environmental as well as economic benefits.
As well as mitigating climate change, modern forests – unlike the plantations of the past – are designed to encourage wildlife, offer public access, reduce flood risks and fit into local landscapes. They provide jobs and investment in local economies across Scotland and the timber harvested from those forests goes to wood processing businesses, which have invested almost £700 million in rural Scotland over the last decade.
The seminar audience was enthused by the opportunities presented by forest investment – also helped by a very positive fiscal regime, with forestry investment by and large exempt from both income tax and capital gains tax, alongside a favourable inheritance tax position. There are also Forestry Commission grants available for the creation of new woodland.
At the seminar, David Robertson, Head of Investment at Scottish Woodlands, outlined the very positive investment returns. Interestingly we are now seeing in Scotland very strong interest from pure investor buyers, including institutions from the UK and beyond (not just private buyers).
With good investment returns, there is pressure to find the right land to plant in a competitive market place. Higher upfront prices obviously reduce returns, and planting land is currently in high demand. These purchases are likely to be on rough grazing land, where the economics of existing hill farming, for example, will be challenged after a change in rural support post-Brexit.
And it’s not just about the investment and tax aspects. Many of our private clients take as much pleasure in the management of woodland.
Despite a possible short-term softening, high timber prices look set to remain as demand is certain to remain strong. WWF estimates global demand for timber could triple by 2050 and there are many UK drivers, including building thousands more timber-framed homes and reducing timber imports to make more sustainable everyday products at home rather than sourcing the wood elsewhere.
Our event concluded by highlighting four Ps which make Scotland a positive place to plant:
l Processes for planting in Scotland are more straightforward than the rest of the UK, with the Scottish Government working with industry to remove unnecessary red tape;
l Policy is joined-up, with forest creation linked closely with environmental and economic benefits, especially Scotland’s world-leading climate change ambitions;
l Political support is strong, not just in the ruling SNP administration but across all parties in the Scottish Parliament;
l Prices of timber look set to remain high.
Against this backdrop, it is perhaps not surprising that there is so much interest at the moment in forestry investment in Scotland.
Don Macleod is a Land & Property Partner with Turcan Connell