Oireachtas Joint and Select Committees

Tuesday, 7 May 2013

Joint Oireachtas Committee on Agriculture, Food and the Marine

Sale of Coillte's Harvesting Rights: Discussion with Society of Irish Foresters

3:40 pm

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I welcome Mr. Donal Magner, Mr. John Prior and Dr. Gerhardt Gallagher from the Society of Irish Foresters. The purpose of their presentation is the committee's ongoing discussions on the implications of the proposed sale of Coillte's harvesting rights.

Before we begin, I bring to the witnesses' attention that they are protected by absolute privilege in respect of the evidence they are to give to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members have already been reminded of their responsibilities on privilege.

I call on Mr. Magner to make his opening statement.

Mr. Donal Magner:

On behalf of the society, I thank the Chairman and committee for inviting us to make this presentation. Our presentation represents the views of the Society of Irish Foresters. These are presented in a policy position paper that the society launched a number of weeks ago, and this will be available for members after our presentation and questions and answers.

Before I proceed, I will ask my two colleagues to introduce themselves briefly.

Mr. John Prior:

My name is John Prior. I am a former president of the Society of Irish Foresters. I am also a former board member of Coillte and I am a retired Coillte district manager. I am involved in the authorship of the Save Our Forest document that the IMPACT trade union produced, and I have been involved in working on that campaign as well.

Dr. Gerhardt Gallagher:

My name is Gerhardt Gallagher. I am also a past president of the Society of Irish Foresters. My background is forest research and operations and wood supply in the original forest service, then as land and estates manager in Coillte and, lately, as consultant adviser to the forest service, COFORD and EPA and to other organisations in an advisory capacity.

Mr. Donal Magner:

My name is Donal Magner. I am secretary of the Wood Marketing Federation, forestry correspondent with the Irish Farmers' Journal and author of a number of publications, including Stopping by Woods: a Guide to the Forests and Woodlands of Ireland.

I will begin with a brief background on the Society of Irish Foresters. The society was founded in 1942 to advance and spread the knowledge of forestry in all its aspects. It represents the forestry profession in Ireland, North and South. Members of the society since its foundation have planned, managed and maintained State and private forest estate which is worth approximately €2.2 billion annually. The society also places a strong emphasis on forestry education and the promotion of forestry standards in Ireland. Since its foundation in 1942, the society has influenced a great deal of what has happened in Irish forestry policy, both State and private.

The society has consulted widely during the preparation of this document. It has discussed it with the sector, trade unions and a wide range of stakeholders. Our findings take account of social, environmental and economic implications of the sale of Coillte's harvesting rights.

I will give a brief background on Irish forestry. Forest cover had reduced to approximately 1% at the turn of the last century. On average 95% of all afforestation was carried out by the State from 1904 to the mid-1980s. This was totally reversed during the late 1980s due a great deal to changing EU agriculture policy and incentives for farmers to plant. Today, approximately 100% of planting is carried out by the private sector, who are mainly farmers.

Total forest cover in Ireland now is 760,000 hectares, approximately 11% of the total land area. Some 50% of forests or 6% of the land area of Ireland is in public ownership, mainly owned by Coillte. Because of the young age class of private forests, 83% of wood sourced by Coillte and by other industries is from Coillte-owned forests in Ireland.

I will give a brief background on how we got into this private forestry mix. Private forestry is, first, a partnership between farmers in the main and the State to create a viable forest sector. The farmer provides the land and the commitment to manage the estate while the State provides grants and annual premium payments until the forest achieves productivity. Public forestry also has a commercial mandate but it undertakes a much broader remit which looks at areas such as non-wood aspects of forestry, including recreation.

The Government continues to support farm forestry in Ireland. The table in the presentation provides a rough idea of what there is in Ireland at present. In 2012, the State has more forests than the private sector, but by 2020, based on current planting rates, the private owners will own approximately 18,000 hectares more than the public sector.

The society strongly supports the economic, environmental and social function that public forestry provides in Ireland. This is also known as multi-purpose forestry. Coillte is required by the 1988 Forestry Act to carry on forestry with due consideration to the environment.

Coillte forests provide continuity of timber supply and sustainable forest management, including FSC certification, which is an internationally recognised environmental accreditation which has benefits, not only for Coillte but for the saw-milling and timber processing sector. There are few industries as interdependent as forestry, from nursery production to forest establishment to road construction to timber harvesting and processing to manufacturing.

On its non-wood function, the society supports the continuation of Coillte's open forest policy which provides open access to forests for all our people and for visitors to this island. This is an acknowledgment that public forestry was funded by the Exchequer through the Irish taxpayers since the foundation of the State.

The society believes that the proposal to privatise the harvesting rights of publicly owned forests has a potential to disrupt the sustainable development of forestry and the forest-produced sector in Ireland. A major change in the ownership or management of publicly owned forests will alter the way these are managed, especially in relation to sustainable forest management and their ultimate benefits, not only to the State but also to society. The purchasers of the harvesting rights will be unable to pay the full value of the non-wood benefits, especially recreation. Alternative arrangements to continue to provide these benefits are likely to cost the State much more than current practice. Instead of the Exchequer being a beneficiary in the long term, this could cost the State much more. The society believes that the proposal to sell the harvesting rights has not been rationally assessed as to its impact on the sector and on non-wood or public good aspects of forestry.

I will speak briefly about the accountability of forest owners. Both forest service organisations in Ireland, North and South, ensure the range of standards and guidelines on the economic, environmental and social functions of forestry are fully adhered to and enforced. The society endorses these because they are compatible with good silvicultural practice, which is the proper management and maintenance of forests.

We have listed 11 of these that apply to all forest owners, whether they be forest owners in the future, State or private.

These include having in place sustainable forest management structures in Ireland for all owners to provide continuity in management, including the restocking of all forests and the continuation of adequate auditing and certification through management and ownership change; due care for the environment and existing forests during harvesting and other operations; protecting our forests against disease and infestation; and promoting and implementing continued safe and high-quality access to forests by the public and the maintenance of an open forest policy. In this regard, Coillte maintains 24,000 km of roads. Also included are maintaining native and amenity non-commercial forest areas; maintaining areas reserved for forest research; employing qualified forestry professionals at all stages of forest management; the principle of sustained yield to manage the continuity of wood supply to existing industries to ensure a balance between felling and growth to conserve carbon stocks; providing for periodic inventories of forest stock which is vital for timber processing to allow planning for the future; regulatory requirements with appropriate sanctions applied to all forest owners; and consideration that the income from harvest sale or part thereof should be reinvested in the forest industry, such as its non-wood contribution.

The society believes these safeguards cannot be guaranteed to stakeholders if the harvesting rights of Coillte public forests are sold in Ireland. The effect of privatisation on public forests would reduce the area of public forest ownership to less than 2% of the land area of Ireland compared with 16% in Europe. The proposed privatisation would virtually eliminate the public forest estate and, by extension, Coillte as meaningful entities, leaving Ireland unlike any state in Europe or the developed world.

I will speak briefly about the forest industry and the economy. I know the Irish Timber Council came before the committee last week so I will not dwell too long on it. The saw-milling sector, along with the panel board industry, exports up to 80% of its produce at present, compared with 17% during the Celtic tiger. Saw-millers have stated that privatisation could decimate this growing export-led industry and destroy its employment potential in rural Ireland. Irish sawmills have invested heavily in new technology to gain export market share. Irish processors are the most competitive and innovative in Europe. The Bacon report showed prices of standing timber paid by potential buyers would have to be double what is achieved at present. Already Irish timber processors pay between 30% and 100% more for standing timber than their counterparts in the UK. This increase for the Irish saw-milling sector would be completely unsustainable. Two major comprehensive reports contend that the privatisation proposal has no economic benefits.

Fears about public access to our forests are well founded. These have been expressed throughout the year by NGOs, political parties, the trade union movement and other bodies and, more recently and more vocally, in Avondale, County Wicklow. Access is one of the reasons European countries ensure almost half of their forests, which amounts to 16% of the land area, are in public ownership. It is also why the British Government abandoned its plan to privatise the Forestry Commission woodlands. The society, as an all-Ireland body, welcomes the recent change in legislation in Northern Ireland on public access which strengthens the previous policy of permissive access. Stakeholders now enjoy a legal right of access to all forests owned by the Northern Ireland Forest Service.

Our managed forest history is young, as the State has had less than 100 years of continuous management, while the private sector, mainly farmers, has had only 30 years. This compares with centuries of sustained management in countries such as France and Germany. This is an opportune time for us to assess the future of forestry in Ireland by way of an independent panel or other structure to include the examination of Coillte as a forestry company, and its enterprises in areas such as timber processing, wind energy and property development along with its wood and non-wood contribution to the State and society.

The forestry sector needs stability and continuity to maximise its performance, which is a well-balanced private-State forestry mix. The privatisation proposal could undo all of the work carried out in restoring our lost forest resource since 1904. It is the society's considered view that privatisation of the State forest resource has major long-term environmental, economic and social risks which far outweigh even the more optimistic short-term gains. Therefore, we oppose the proposal to sell off the harvesting rights of Coillte forests.

3:50 pm

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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The presentation was very comprehensive and it is very hard to argue with it. To be quite honest, at this stage, all of the evidence from all sectors of the industry is quite simply that it would be ludicrous to sell off the forest crop. Mr. Magner has outlined that this is multifaceted, in terms of the interests of recreational users, sawmills, users of forest material and the preservation of the forest as a national resource available to the people.

Once the forest crop is sold, and the witnesses may have information on this, I presume the Government would want the money from the sale, which means the viability of Coillte would be in doubt. If Coillte could not fund the rural recreational, public good and non-commercial work it does in our forests at present, such as maintaining arboreta, what would it cost the State to fund it directly? I understand the forestry in certain older plantations has elements which are not maintained for commercial purposes but have various species of trees in various areas. I am thinking of places such as Cong with older plantations which are not purely commercial, but the tree element has particular wealth in it. How much would one pay to maintain these non-commercial forests without the forest crop to fund it?

Mr. John Prior:

Expressed in current terms, the non-commercial activities of Coillte would cost the State €330 million over the 80 year duration.

Dr. Gerhardt Gallagher:

Another figure quoted is the cost per visit to forests and one estimate of this is approximately €200 million to the estate. The Bacon report reduces this value to the estate in the cost of privatisation exercise. Mr. Bacon estimates the loss of the amenity value, which includes many of these intangibles, to be approximately €105 million which would have to be removed from the price the investor received. Added to other liabilities, this creates the picture of a loss to the Exchequer after the exercise rather than a gain.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I normally bank questions and I call Deputy Ferris.

4:00 pm

Photo of Martin FerrisMartin Ferris (Kerry North-West Limerick, Sinn Fein)
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I thank Mr. Magner for his excellent presentation which was well laid out and very factual. I commend him on putting in print, and explaining it very well here, the fallacy of selling the harvesting rights. The sale is absolutely and utterly ridiculous and I detect that the Government is having second thoughts about doing so. We will have to wait and see.

At the end of last year we debated the sale of the harvesting rights of Coillte when it indicated that a portion of them would not be sold off due to being unviable. What percentage of lands owned by the public is non-viable and cannot be sold off? What would happen to the recreational value of those lands if the harvesting rights were sold? Would the sale not compromise the recreational value? A sale would mean that people would lose their right and entitlement to walk on the lands and thus decrease its recreational value. The communities that benefit from the forests would also lose.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I shall take three speakers together. I call Senators Comiskey and O'Keeffe and Deputy Luke 'Ming' Flanagan, in that order.

Photo of Michael ComiskeyMichael Comiskey (Fine Gael)
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I thank Mr. Magner for his presentation. The committee is very interested in the subject. I would like to see the recreational aspect of forestry developed more and a lot more can be done.

I am concerned about the sale of the harvesting rights. It is important that we hold onto them as it affects a large amount of lands. Planting is mostly done in private forests. Has enough planting taken place? Do opportunities exist to plant more lands? Do we import many logs of the spruce variety and that type of species?

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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The delegation is welcome. I have a couple of queries that may sound as if I am thoroughly in favour of selling off every tree but that is not the case. Perhaps the delegation will clarify the following matters for me.

Mr. Magner listed some of the standards that he worries will be compromised if harvesting rights are sold. To me, they look like standards that anybody involved in a private enterprise would be foolish to ignore. For example, protection against disease, due care for the environment and sustainable forest management. If one is in the business of making money one must do those things. Which standards would he deem to be particularly at risk?

With regard to safeguards, Mr. Magner said, "The effect of privatisation on public forests would reduce the area of public forest ownership to less than 2%". On what did he base his comment? If one wants to encourage people to enter the business and make money then why would the amount of land be reduced? I am sorry but I did not understand his comment. He further stated that the amount of exports had grown considerably in the past number of years and that sawmillers said privatisation could decimate that. Again, I am at a loss to understand why. If one is in the business of making money then one would look to where one can sell timber, sustain and grow export markets rather than allow them to wilt. I would be grateful if Mr. Magner could clarify the matters. I share the concerns expressed by Senator Comiskey and many other people about harvesting rights. I want to understand the arguments made by Mr. Magner to keep the rights.

Photo of Mary Ann O'BrienMary Ann O'Brien (Independent)
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May I comment?

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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The Chairman wishes us to bank all of the questions and then the delegation will have an opportunity to respond.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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We must wait until all of the members of the committee make their contributions before allowing Senator Mary Ann O'Brien to contribute.

Photo of Mary Ann O'BrienMary Ann O'Brien (Independent)
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I apologise. I thank Mr. Magner for his presentation. I apologise for not reading the two major comprehensive reports that state that there are no economic benefits to be gained from privatisation. Please inform me where I can find them.

I ask the delegation to outline its turnover and profitability. I hope that all goes well, that the society keeps the rights and we do not sell our forestry. Can the society share its five-year plan and profitable growth strategy with us?

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I shall finish the question session and call Deputies McNamara and Luke 'Ming' Flanagan.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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I am sorry that I did not hear the presentation but I had to step out of the meeting. How diverse is Irish forestry? Can its small diverse range of plants be compared with other European countries?

As I have said previously, there is a lot of forestry in County Clare yet there is very little economic benefit or spin-off industries now. Ironically, a chipboard factory in Scariff was closed down due to a low supply of wood. County Clare is the third most afforested county in Ireland. However, supply was an issue for the factory because Coillte does not engage in supply contracts. Is it unusual, using western Europe as a comparator, for large forests not to engage in longer term supply contracts? There is a year-by-year supply but it is hard to justify or secure private sector investment if one is not guaranteed supply.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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A review of the forestry sector has been carried out but the Government has not published it yet. Last week representatives from the sawmill sector attended. On that occasion I asked the Irish Timber Council did it have an input into the review but was told it did not make any as it was not approached. Did the society make an input to the review?

Mr. Magner made an excellent presentation and expressed a strong argument against the sale of Coillte. The arguments are so strong that I shall repeat what I said at last week's meeting. It is time that we put the matter to bed. The Government told us exactly what was going to happen. Therefore, we should concentrate on deciding not to sell and how to improve the sector which would be helped by the publication of the report. Did the society have an input into the report?

Photo of Pat O'NeillPat O'Neill (Fine Gael)
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I apologise for missing the presentation but I have read it. Last week the sawmillers attended and the council stated that it pays a 27% premium when an Irish forestry product enters one of its sawmills. Earlier the society stated that 82% of its Irish timber product is exported. Can an export price comparison be made with world market prices? Is the product sold at a world market price? Is it exported at a lower price? Why is there still a need for a 27% premium if so much of the product is exported? Why must sawmillers pay a 27% premium for an Irish forestry product?

Mr. Donal Magner:

Many questions have been asked. I shall answer some of them and my colleagues shall answer the remainder. I shall commence by responding to the last question posed by Senator O'Neill.

The premium that Irish processors pay on timber is based on log supply here and Irish mills are over supplied. For example, Glennon Brothers, a mill that was represented here last week, continues to import around 150,000 cu. m of logs into the country because of a shortage of raw timber material. A shortage means that more mills must compete for less product. As a result, Irish mills must pay more than their UK counterparts before they can export to the UK. Unfortunately, Irish mills must pay the premium in order to compete.

I have visited a number of Irish sawmills, especially ECC Teoranta, Murray Timber Company and Glennon Brothers. I have found them to be much more competitive because they must deal with lesser commodity, use a tighter process and compete with UK growers. They must also compete with the Scandinavian countries who have a better quality resource than Irish timber, even allowing for the 30% increase.

4:10 pm

Photo of Pat O'NeillPat O'Neill (Fine Gael)
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The industry exports up to 80% of its processed product?

Mr. Donal Magner:

Yes, that is not just the produce from the saw mills but from the board mills in Clonmel and Masonite board mills in Leitrim and Waterford. These mills are more competitive and are able to compete in the market place.

I will now respond to Deputy Luke 'Ming' Flanagan's question on the review. We were not involved in the review of forestry. The review of forestry started on the same week as the 2020 agricultural review. Whereas the 2020 report was done and dusted within five or six months, work on the forestry review is still ongoing two years after it started. At the end of our presentation we stated that perhaps this is a good time to look at Irish forestry and policy and not have to sit back and wait for two or three years for a review that will obviously go nowhere. The urgency is gone out of it. It would have been excellent to look at the review of the privatisation of Coillte

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I must interrupt the speaker, there is a Vote in the Seanad.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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Would Mr. Magner mind answering the questions asked by Senators as we must go and vote.

Mr. Donal Magner:

Senator O'Keeffe asked about standards and I will ask my colleague, Dr. Gerhardt Gallagher, to respond to her.

Dr. Gerhardt Gallagher:

In regard to the constraints on an investor and what he would have to consider before making an investment, when we started to add up the constraints, they are the standards of behaviour which would be the minimum for such an investor to adhere to.

We think that forestry is not the same as any other manufacturing industry, it is very highly regulated. Those involved in the forestry industry must be governed by many Acts of Parliament and EC directives. That would also apply to the harvesting rights. For example, an investor would have to consider the type of operations it would carry out near rivers and streams. Some of that can be quite restrictive. Forestry is unique in that it is the only industry that contributes to the storing of carbon. It has an extra responsibility, especially in harvesting operations. If one fells 7,000 cu. m without planning permission that can create a major hole in carbon storage. These are just a few points.

Photo of Susan O'KeeffeSusan O'Keeffe (Labour)
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I must leave but I will be back. Perhaps the witness will respond to other members' questions.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Will Mr. Magner respond to the questions of a member who is present?

Mr. Donal Magner:

I will now respond to the questions asked by Deputy Ferris.

Photo of Martin FerrisMartin Ferris (Kerry North-West Limerick, Sinn Fein)
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My question relates to a presentation in which it was stated that there would be little or no interest in some Coillte lands which were seen as not very viable.

Mr. Donal Magner:

I conducted my own survey during a four-year period when I was writing Stopping by Woods: A Guide to the Heritage and Recreational Forests of Ireland. Coillte has 150 official forests, which are regarded as recreational amenities, in which signage and roads are maintained to ensure the public has free access. When I went around the country I found that Coillte had entered relationships with Tidy Towns committees, local community groups and by the time I had finished, I had counted 220 forests, which are all written up in my book. I would imagine that if I explored it further, there are between 250 to 260 forests that are accessible. Even if one were to put 300 hectares to 400 hectares, at a very minimum Coillte has 100,000 hectares that are widely used. I am not including people who live close to a forest and use it of an evening as a private amenity. In some forests I would meet a couple of people over a 24-hour period but others are used by a significant number of people.

The point we are making, without being able possibly to put a figure on it, is that if one were to eliminate a company such as Coillte, but decide to hold back 100,000 to 150,000 hectares, some 30% of the estate, some group will have to manage it. A body such as the National Parks and Wildlife Service could undertake that work but it would be an additional cost to the Exchequer as it will generate very low income as it will be managed solely as an amenity. The State makes demands on a company such as Coillte to provide open access and other non-wood benefits. That is paid for by Coillte out of its revenue generated by commercial saw milling. If one were to give that commercial entity to some other investor, one must ask the local authorities, the National Parks and Wildlife Service or some other non-commercial venture to do that work, it will eventually cost the State money if it is managed properly.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Are there other questions?

Mr. Donal Magner:

May I mention what happens in County Clare? Clare is in the top three counties with forest cover. A few years ago I did a project with Fr. Harry Bohan in which we looked at forests from Mount Shannon to Feakle. Approximately 20% of the land of County Clare is now under forest cover, yet it is a success story because one of the first forest producer groups was set up in County Clare - there is another one in County Donegal. They have decided that to sell timber to mills very far away from Clare is of questionable value because of the transport costs. They have set up a producer group which is providing the first thinnings, the poor earners, for wood energy in local hospitals and nursing homes. I think one of the county council buildings is generating energy from wood. This is a major incentive.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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What about long-term supplies?

Mr. Donal Magner:

As a marketing ploy, it sells long-term supplies to the board mills in Ireland, that is Clonmel and Waterford Medite which it now owns but it always supplied them even when it did not own them. In fairness, Coillte is getting a premium for its logs. When I worked with the Irish Timber Council years ago, when price was no longer as issue, I saw that the big fear that saw mills have is continuity of supply. One of the major benefits is that Coillte has given commitments to the market in the United Kingdom, to which it is exporting virtually all of its product. If Coillte does not honour its commitment, it will fall out of the market and people will lose faith in the company. In fairness to Coillte, during good times and bad times, it has kept the flow of timber to the saw milling sector and has not withheld it. One of the fears is that the company which buys the company may decide that if the price of timber does not reach €60 per cu. m it will hold the product back and will wait until the price rises. That is all fine in short-term planning but in long-term planning it would destroy a number of saw mills.

Dr. Gerhardt Gallagher:

This happened in Scandinavia a few years ago. The owners held on to the timber with very disturbing results.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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That was my question. Mr. Magner stated that Coillte supplied its customers through good times and bad times, but it refused to enter into an agreement to supply either the saw mills, some power plants or anybody else. I understand that to be the case. Is that the case? Is that typical of the way the European forestry and timber industry functions or is it unusual?

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Deputy Ó Cuív wants to ask a question

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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The vast majority of timber coming on the market is public timber as the amount of private forest timber coming on the market is very small.

Am I right in thinking that there is an electronic auction every month at which each timber mill bids? However, the five big milling companies are all regionally based so effectively Coillte ensures that timber is coming up in every region all the time because it is aware of the mills' requirements. Each one has a particular area of interest but I accept that there are overlapping areas. Obviously, the nearer the timber is to a mill, the cheaper it is because haulage is a major cost. Where they do not have a formal contract with Coillte, there is a clear gentleman's agreement that timber will be made available to keep all the mills functioning so they can meet their market requirements. It is made available on a regional basis. In other words, if there were five owners, one region could be supplying a load of timber while another region supplied none. That would not suit the mill in a region from which no timber was being supplied. In reality, this understanding works more effectively than if five owners were involved. Is my understanding of how and why it works correct?

4:20 pm

Mr. John Prior:

That is correct, yes.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Deputy McNamara's question was simply to ask if there was an agreement, "Yes" or "No". Is it the reality that there is an understanding? That is essentially the point.

Mr. Donal Magner:

When Coillte markets its timber, the main activity is the auction on a Thursday. Every sawmill has a button and a monitor as the timber comes through and they all bid for that timber. That is the bulk of it. In the past, however, there was a distribution system. In other words, some mills had an arrangement - not a long-term one - whereby they would not be totally left out. The auction system was agreed at the time. I spent a while with the Irish Timber Council and people there often asked what they could have instead of the auction process. The electronic auction is overseen independently and it actually works. However, there is still overcapacity in the mills which means that too many mills are chasing too few logs. There is no way one can divvy it out, so to speak, for everybody's attention, but there are arrangements. I know there have been arrangements in the past, although I am not too sure of what it is now, whereby mills did not totally suffer. If a region around ECC dried up, for example, they often brought forward sales to facilitate them. It is in Coillte's interest to have a competitive saw-milling sector.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Putting it simply, a holistic view was taken of the country's timber milling industry, including the forest crop. When it was put on the market, not only was Coillte looking at its own interests, but it also considered the sustainability of the mills. I have one final question on this matter. Am I right in thinking that if, because of this overcapacity in the mills, one broke the forest crop up into five or six slots, it would exacerbate price problems rather than bringing them back?

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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One of the products is finished logs, but along the line there are first and second thinnings. Mr. Magner mentioned the plant in Clonmel and the other Coillte-owned plant which has security of supply. Does Coillte provide security of supply to any company outside Coillte - yes or no? Is that unusual for the European forest industry - yes or no?

Mr. Donal Magner:

First of all, we are not representing Coillte here today.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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I am asking questions and Mr. Magner is representing a sector.

Mr. Donal Magner:

In any situation where there is overcapacity, mills will seek to ease that. If the Deputy is asking whether there are long-term supply contracts with mills the answer is "no". Otherwise, there would not be weekly timber auctions. Everybody sees what comes up but this is a two-way street. If one starts giving contracts to mills, then other mills will not get comparable contracts. Therefore, the safest way out of it is to have an open, transparent contract system which is working.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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As I understand it, EirGrid bids for electricity supply on the grid every half hour to the suppliers. They are independent and have no security of supply. There is a weighted agreement for wind, and in times of flood, hydro takes precedence. Everybody has an agreement to be part of the bidding process and that is as far as it goes. It is a comparison and yet it seems to work.

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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If the Chairman wants to use that comparison, that is fine. However, if one wants to set up a semiconductor plant in Limerick and enter into an agreement with an energy supply company, it will agree to supply the plant as long as one keeps paying. I agree that there has to be a market for logs but my point concerns thinnings. I live in Scariff, County Clare, and grew up in the foothills of Slieve Aughty so I know the area. I also know how sterile the whole area is as a result of deforestation. There is a single crop from Scariff to Gort, over to Loughrea and back again. More or less one crop predominates. It was planted in some areas where it is doing very well, but is doing horrendously badly in other areas. There is no economic benefit from it, yet those areas are being damaged. They were ordered to be clear felled by the European Commission, and that has happened. I know the area and also know that there is a load of thinnings coming on line there, but nobody knows what will happen to them. Industries could be developed around processing those thinnings, yet no one can develop them because nobody can get a supply contract from Coillte. Is that usual or unusual in the European context? Coillte has supply contracts for its own factories. There might be an anti-competitiveness issue there, but nobody has ever taken it up. The Irish attitude to competition is quite unusual, as the IFA would know.

Mr. John Prior:

It is unusual. There is probably a historical background to it because pulp was almost impossible to sell and had hit rock bottom. In order to encourage pulp manufacturers into Ireland, Medite in Clonmel had to be given a long-term contract. That was the only basis upon which it would come in. The same situation applied to Louisiana-Pacific which was the original owner of the Waterford plant. Pulp is a different commodity than saw-log timber. It is a much more fluctuating market in terms of output and is susceptible to sudden requirements of supply. If there is a hurricane in America, everybody needs hoarding material. It is a cheap commodity and there are quiet years when no hoarding is required. However, a slightly different situation applies to pulp than to saw-log.

Deputy Ó Cuív has described the situation correctly. Saw-millers have the comfort of knowing that every year Coillte's supply of logs will be put on the market. They are given a five-year advance understanding of the scale of that, so they can plan accordingly in total confidence. That is quite different from the situation concerning private sellers such as IFUT, the Irish Forestry Unit Trust. If one looks at the latter's sales record, one will find that in a particular year, its sales of timber could be one-fourteenth - as it was in one recent instance - of what it is the subsequent year. One could not invest in a sawmill on the basis of a supplier who is going to hold back this year and offer a whole lot next year when the material is dearer.

Mr. Donal Magner:

That works well in countries with an oversupply of logs, such as in Scandinavia where there is 70% forest cover. In Austria, there is only a 40% or 50% forest cover. Across Europe forest cover is 40%. There is a state-private mix and there may be an abundance of logs in some countries. In Ireland, due to our competitive saw-milling sector and because so little is coming on the market from the private sector, there is a huge demand for logs at the moment. Any company operating with a commercial mandate will use that as a marketing plus. That is what Coillte has at the moment. For example, I know of one mill that fought hard for a guaranteed supply eight years ago. It is a small to medium-sized mill processing 100,000 cu. m of logs per annum. Because of the increase in private planting, it is now mainly getting around 65% to 70% of its logs from farmer growers. Therefore, it is no longer hung up on seeking security of contracts. That will happen increasingly as one gets farmers coming in.

Nine years ago, the private sector supplied 100,000 cu. m. It is now supplying 400,000 cu. m and by 2020 it will pass the 1 million cu. m mark. The private sector is increasing and at last we are getting a good mix of public and private. We contend that a good State forestry mix is needed as a counterweight. It is vital. We need research and other things; we are only at the beginning of species selection. We planted 2,000 acres of ash in the last few years but we are no longer planting that variety.

There is a large amount of work to be done on preservation, disease and other matters. The State sector must provide its time and resources for that, as well as for recreational and other non-wood benefits.

4:30 pm

Dr. Gerhardt Gallagher:

There was an estimate of €20 million per annum in profits for Coillte. That was built into the calculation of what the sale should achieve. Discounted, that worked out at €500 million, which was part of the €700 million figure.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Is that on foot of the Bacon report?

Dr. Gerhardt Gallagher:

Yes.

Mr. John Prior:

That was the actual profit. Coillte's profit last year reached €20 million, the highest it has ever reached. Profits are cyclical, as is the timber trade, with timber prices cyclical. There is always a degree of up and down in terms of the profitability of the State forestry or any other forestry organisation.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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An independent council was mentioned. It seems no one wants the State forestry proposal to go through but to a man there has been criticism of the current model. Something must be done so could we hear the vision for the forestry if some sort of proper review takes place that offers a new direction? Some people would say Coillte does not have enough foresters to manage the forests. I know I am talking to three people with a vested interest as forest inspectors or managers but if a State entity is to provide a forestry sector, it must grow the timber and manage it properly. That might be a simple place to start from but that is where we should start.

Mr. Donal Magner:

In Ireland there is a forest authority, the Forest Service, which is housed in the Department of Agriculture, Food and the Marine. It is the regulatory body for forestry and it hands out grants. The other body is Coillte, which received a commercial mandate in 1989 to carry out the business of forestry. It does that and we can talk about the way it does so. The Forest Service considers how to increase the forest estate in Ireland. It is currently at 7,000 ha per annum, even though the Government's own strategy is in the region of 20,000 ha per annum. We are well behind that.

The problem is that Ireland has no independent forestry board that takes forestry in its entirety and examines its commercial potential and all the other issues we talked about today. That is a significant negative for Irish forestry and as a result there is the Forest Service that is always talking about planting land and Coillte which manages its own estate. No one out there is making the connection between what is planted in the marketplace and growers. We must change that and establish an independent board to do that. I do not want to get into the idea of quangos because we had the Council on Forest Research and Development, COFORD, where all members gave of their time freely. There is significant desire in the industry to get involved at that level, almost voluntarily, so the sawmills can plan. Also, Coillte will get recognition for the non-wood aspects of forestry while the State can make its own demands on the economic value of the State forestry. There is no independent body, however, that looks at all stakeholders' input in forestry. Such a body might be similar to Bord Bia but looking at forestry.

As Deputy Flanagan pointed out, it is incredible that the sawmill sector, which contributes most to the industry, is not even at the table when a forestry review of the country is being carried out. What is the point in having that review if the people who take the timber and convert it into cash do not have any voice? That is the sort of vision we are looking for.

Dr. Gerhardt Gallagher:

The best people to question policy are the stakeholders. For example, the 1996 "Growing for the Future" plan was the last policy on forestry. The stakeholders would be delighted to have the opportunity to have a forum to discuss these policies and where issues of importance such as land use and land availability could be put on the agenda.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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It would possibly improve the relationship between those who want to set up a business and those who supply the raw material.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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The discussion at the end, which goes way beyond the sale of the crop, is very important. There are many complexities in the forestry industry. I understand one of the main sources of need, aside from the residue issue from the timber mills, is that there is a lot of pine that is not suitable for saw milling. It was used as a first crop on bogs because the Sitka spruce would not grow on the bog. When talking about pulp meal, it is a uniform product and pulp wood or clean chips are needed. It is slightly different from a company buying a standing crop of timber. There might be a guaranteed supply but the price depends on the quality, size and maturity of the timber. Until someone sees the standing crop and its location, it is impossible to say what he or she will pay for it. As long as there is an understanding that a certain amount of timber will be put on the market nationally to keep the mills going, it is not possible to go any further in terms of long-term contracts for the mills because there is such a variation. For a board mill, there is a slight difference. We should not forget the board mills depend hugely on the sawmills but the sawmills depend hugely on the board mills being there because if the board mills closed tomorrow, of any log that goes in, only 50% comes out in square timber. The rest either comes out in bark timber or chips. When all of this is over, and please God the Government will quietly drop the plan in the next few weeks-----

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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It was a Fianna Fáil plan.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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It was not our plan. The Deputy should check the four year plan. There was no commitment to sell State assets in that plan.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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It is a rubbish plan either way. Who cares? Just do not do it.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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There was a commitment to look at their value, that was all. The troika has said time and time again that the Government can change anything in the plan as long as the bottom line is right.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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As has been acknowledged by two Ministers directly responsible, this is a complex matter. We are only beginning to scratch the surface. With regard to the growing of trees, the Forestry Society has passed the teeth-cutting stage. The three gentlemen in attendance, who have great experience, can provide an analysis of the flaws in the current proposal and give an alternative. We must look at that one way or another as a committee. We have tried bringing in non-committee members and using this as an open forum for this discussion to take place in public; we are trying to do this in good faith.

We appreciate receiving an input from people who have a greater knowledge of this issue than members.

4:40 pm

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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While Deputy McNamara raises a valid issue, he is comparing chalk and cheese in that thinnings, particularly first thinnings, are of no interest to major sawmills. My experience of forestry since before Coillte was established has been that sawmills will not have difficulty obtaining 10,000 or 20,000 cu. m of timber per annum, especially if they are seeking thinnings. However, most of the major timber mill companies will use between 300,000 and 500,000 cu. m of timber per annum. Smaller mills using 20,000 cu. m per annum, primarily thinnings, will not have any problem obtaining timber because they will look for small timbers. I would be surprised, therefore, if they care about the proposal. A man named Max, who used to make stakes in-----

Photo of Michael McNamaraMichael McNamara (Clare, Labour)
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He is still around and there are a couple of other stake producers. Operating a combined heat and power plant would require much more timber than a stake producer would need.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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Another aspect of this debate, which goes beyond the scope of this meeting, is the possibility of having a refit scheme.

The witnesses may make some concluding remarks if they wish.

Dr. Gerhardt Gallagher:

The position here is slightly different from other countries where privatisation has taken place. New Zealand, for example, has a huge indigenous forest of podocarps and various other species. Its non-privatised area of natural forest is very large, whereas Ireland has only a small area of indigenous forest remaining and depends mainly on introduced species. The area of recreation and amenity is intertwined with forestry. For example, visitors to Crone Wood in Glencree will find good commercial Douglas fir growing on the side of a mountain on which thousands of visitors walk every weekend. One cannot put forestry and recreation and amenity into separate boxes because they are closely intertwined. This is another reason we would prefer the mix of public and private forestry.

Photo of Andrew DoyleAndrew Doyle (Wicklow, Fine Gael)
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I thank Mr. Magner, Mr. Prior and Dr. Gallagher for their contributions, which have been very helpful.

The joint committee went into private session at 4.45 p.m. and adjourned at 4.50 p.m. until 9.30 a.m. on Thursday, 9 May 2013.