The Potential Economic Returns of Converting Agricultural Land to Forestry: An Analysis of System and Soil Effects from 1995 to 2009

Abstract

Private land owners have been responsible for the majority of annual afforestation in Ireland since the mid1990s, but planting rates have generally been declining since 2002. Although the decision to plant may be driven by a number of factors, the profitability of forestry as a landuse option should be an important driver and offer some insight into trends in afforestation rates. As farmers undertake most afforestation in Ireland it is important to account for the opportunity cost of lost agricultural income when analysing the financial outcome of planting. In addition, soil quality plays an essential role in dictating the productivity and profitability of both agriculture and forestry. This study examines the effects of soil quality and superseded agricultural system on the potential profitability of afforestation by farmers between 1995 and 2009. Data from the National Farm Survey were employed to identify the annual gross margins for six agricultural systems on six soil types that differ in terms of quality. The measures of soil quality were translated into potential yield classes for forestry using an existing productivity model and Teagasc’s Forest Investment and Valuation Estimator was employed to calculate the net present value of afforestation for each of the systems and soil types. The results demonstrate how the competitiveness of forestry as a landuse option is influenced by soil quality and superseded enterprise and how forestry has become more competitive with agricultural enterprises over the period of analysis.