16 March 2001

Plantations are struggling in a difficult sector

By Andrew Shirley

COMMODITY prices in the rural sector have been struggling and timber has been no exception, says Jon Lambert, of Edinburgh-based partner with John Clegg & Co.

Prices have fallen over the past five years to December 2000, sometimes by as much as 40%. This has affected the value of commercial forestry throughout the UK and restricted the volume of sales over the past year.

Mr Lambert says mature plantations, where a large proportion of the value is attributable to the volume of timber, met with particularly difficult trading conditions. Mid-rotation crops were also affected, but younger well-established crops received good interest.

This is confirmed by FPDSavills in its latest forestry market report. The average price per stocked acre fell 7%, from £777/acre in 1999 to £723/acre in 2000. The area sold fell by 48% to 15,442 acres over the 12 months to September 2000. However, the report suggests timber prices may now have bottomed out and should remain stable in the short-term. This is partly due to the strengthening of the k but can also be attributed to reduced domestic harvesting.

Mr Lambert believes this slight upturn in prices could lead to more transactions taking place this year, with more activity in all plantation sectors. Looking back, he feels a number of deals struck in 2000 were agreed at very low levels to optimistic buyers taking advantage of lower prices in the market.

The continued demand for non-commercial woods, especially in southern and central England, continues to surprise the firm. The agent says more and more wealthy individuals are keen to secure woods for recreational and amenity reasons, with the price paid per acre having little to do with the value of the timber. This market is expected to stregthen.

Inheritance tax planning is still one of the main factors behind forestry purchases, says Mr Lambert. Two years ownership of commercial forestry means that there is no IHT to pay upon death. Crop growth is also free of capital gains tax and timber harvesting income is free of income tax.

He has just launched a 593-acre plantation which could appeal to such buyers. Crackingshaw Forest, in the Scottish Borders, is largely made up of Sitka Spruce planted in 1988 with a smaller acreage of other conifers and 39 acres of broadleaves. The asking price is £180,000.