Mr. Gerard Murphy:

Since 1993 Coillte has paid €20.8 million in direct payments to its farm partners and over the same period Coillte has received €3.8 million from crop profits. That is €17 million that Coillte still needs to realise and that does not include the significant management and overhead costs incurred in managing these partnerships. Taking this into account, Coillte has a very significant interest in maintaining these forest crops well and maximising their overall financial performance.

I will speak a little about the operation of the scheme and its benefits. The key feature of the partnership agreements is that there is an agreed profit share between the partners. The structure and timing of this profit share varies for each scheme. In many cases the partner had a choice of different schemes, depending on the individual preferences. Profit share is typically realised in most cases by the partner through the payment of an annuity and a share of clearfell profits at the end of the crop rotation. In certain schemes, the partner receives a guaranteed payment through the life of the crop, irrespective of the performance of the crop. The precise share of the profits payable to the partners at clearfell is primarily determined by the value of advance payments plus the annuity payments the partner receives. Upfront payments are calculated based on the forecast profitability of the crop. In later agreements, these payments are reviewed on a five-year basis to reflect the actual rather than the forecast performance of the crop.

Profit is calculated by reference to direct costs only, such as harvesting, haulage and marketing, and it does not cover any management charges. Coillte recoups its management and overhead costs from its share of the profit. Coillte receives a small portion of profit from thinnings, typically 20%, as they are carried out but must wait to the end of the rotation to realise most of its share of the crop value. Coillte incurs a further cost across our partnerships in the order of €500,000 per annum in respect of our direct management costs. This is recovered from Coillte’s portion of the profit share. The partner also receives an annual premium through the first 20 years paid by the Department of Agriculture, Food and the Marine. More than 80% of Coillte’s farm partners are still in the phase where they are in receipt of grant premiums. I have produced a schematic for the committee of how a typical farm partnership agreement operates and it is included in an appendix to the presentation.

There is a good balance of benefits for both partners throughout the crop rotation. In addition to this, the farm partnerships provide important benefits to the wider timber industry. As Coillte receives its returns primarily at clearfell, the flow of benefits to date has primarily been to the farm partner. Coillte is committed to these partnerships to realise the investments of everyone involved. It has a duty of care to protect and maintain its investment in these forests to date as a State asset. Our case studies, which are presented in appendix B and are summarised in the accompanying table, show that there is a balance of benefits and risks to both partners. The vast majority of farm partners should receive over 60% of the value of the plantation over the course of the crop rotation. In all cases, Coillte is responsible for optimising the value of each partnership for the benefit of both partners. Coillte is committed to living up to this responsibility.

At a meeting of the committee in December, a number of matters relating to Coillte farm partnerships were raised. Subsequently, Coillte engaged with the IFA to understand and discuss a number of matters raised by IFA members.

Based on constructive engagement between Coillte and the IFA, we believe that we have an agreed list of key issues. Coillte has committed to address each of these issues through future engagement with the IFA in order that it can then be communicated to members and other farm partners.

In the meantime, Coillte has already taken a number of actions to address some of the concerns that have been raised by farm partners. These have largely been detailed in the interim reports that we have submitted to the committee. As members are aware, Coillte wrote to all its farm partners in December informing them that it had put in place a dedicated phone line to provide a support service. We have actively encouraged all of our partners who need support to contact that line. The number for this line is on the company's website and was also published in the Irish Farmers' Journal.

All calls to this line are logged and assigned to the appropriate person within the organisation. Since 15 December we have received approximately 80 calls to the helpline. The vast majority of calls have been requests for information and have been easily dealt with. A further number of issues are being actively followed up and resolved.

In December, this committee highlighted that in a number of cases, there is a gap between the expiry of the grant premiums and the commencement of Coillte's annuity payments. This situation arose due to a change in the timing of premium payments. Coillte has agreed that where this situation arises, it will honour the spirit of the agreement and will commence annuity payments a year earlier to ensure continuity of income for the landowner.

We have received clear feedback from our partners through this engagement that they are frustrated with the lack of information about payments and how they are calculated. We acknowledge this frustration and apologise to our partners. We have commenced active steps to improve the quality and level of information that we provide to our farm partners. This will include an annual statement which will detail any payments made, any payments due and the basis for their calculation, in accordance with the partnership agreement.

We have retained KPMG to carry out an independent review of how payments are calculated and to verify that the calculation methodology is in line with the contract. This is designed to provide a new level of transparency to our partners on how payments are calculated and to give our partners confidence that calculations are being carried out correctly. We are initially prioritising those partners who are already in receipt of annuity payments from Coillte or for whom forestry premium payments will expire this year. We expect to be in a position to issue these statements in advance of the annual partner meeting this year. It is our intention to provide this information to all our partners in due course. These commercial statements will also serve to address concerns related to insurance, specifically which portion of the crop each partner should insure.

In a number of cases, to ensure that our calculations are accurate we are carrying out a full updated forest inventory. This process is already well progressed. The updated inventory will confirm productivity and any thinnings that have already taken place. It will ensure that accurate statements are produced and that payments are correctly calculated.

Coillte is aware that in certain cases, partners have looked to exit the partnership agreements. Coillte's position is that where genuine reasons exist, we will explore options with farm partners on a case-by-case basis, subject to normal commercial terms. Our next steps are to close out all remaining issues on our call log, prepare commercial statements for our partners, engage with the IFA to agree responses to the issues raised by its members and present options to partners who wish to exit their agreements or for whom it makes sense to restructure their payment schedule.

We believe we have created a significant valuable asset for both parties though the innovative approach taken with the farm partnerships. We have enabled this value to be released to partners in various ways to suit partners' expectations on income continuity. Out of our 630 partners, we have identified approximately seven partners who have expressed significant dissatisfaction with their partnership. While our preference is to continue in partnership, we are open to explore either buying or selling out these partnerships on full commercial terms. We have paid out a net €17 million in payments to date, not including management time costed at approximately €10 million. Like any other commercial partner we need to recoup a return on this investment. We remain committed to our contractual obligations and expect our partners to do likewise. Coillte is open to engagement with any partner who has difficulties or changed circumstances and is committed to improving transparency and communications. We have already taken steps to improve these areas. We will continue to engage with the IFA to address the issues it has raised, especially on commercial transparency and improving communications on resource management and sales strategy.

I am grateful to have been given the opportunity to address the committee today and we will gladly answer any questions.