Forestry and woodland insurance specialist Rory Gibson, of Lycetts, looks at the growing trend of farmers planting woodland– and outlines some of the risks farmers need to be aware of...

SCOTTISH FARMERS have faced a tide of challenges in recent years and 2020 can only be described as turbulent.

Market volatility, post-Brexit uncertainty, subsidy withdrawal, and crop yield vulnerability created a perfect storm and forced farmers to seek opportunities outside of their traditional operations.

In order to futureproof their businesses and ensure viability, farmers are increasingly turning their attention to other streams of revenue.

There are a raft of different diversification options to help farmers bolster their business but one that is becoming increasingly popular is the planting of woodland.

Not only does it protect against the diversion of resources, like other more laborious and time-intensive diversified activities, but it also makes use of otherwise redundant, underutilised, or low-grade land.

But there are other reasons why planting trees is becoming more attractive.

As awareness of climate change and its impact grows, so too does the need for individual and collective environmental action.

For example, in recent years, there has been a concerted effort to encourage the planting of trees in the Scottish uplands, as a flood prevention measure. As the environment continues to move up the government agenda, this activity may become incentivised.

The changes in subsidies is also a consideration. During the phasing out of the basic payment scheme, farmers may look to maximise the earning potential of their land, by turning low-grade land into productive woodland.

Following the completion of the agricultural transition, the ‘push for green’ will play a more prominent role in the distribution of rural grants, so the creation of amenity woodland could also have monetary benefits in years to come.

With the grants currently available for planting at record levels, environmental incentives in the pipeline, and the potential of a lucrative carbon credit contract within reach, it is easy to see why farmers are tapping into woodland creation as a way to boost income.

But with any new venture comes new risks – and farmers need to be aware of the potential pitfalls, as well as the perks, in order to be fully prepared for the launch of their new project.

Carbon credits conundrum

Traditionally, carbon credit contracts have been high risk ventures, with no way for woodland owners to protect themselves against their liability to re-pay or replace any lost carbon credits.

With extreme weather events becoming increasingly more common, vulnerability to loss is also becoming more acute.

Moreover, as demand for carbon credits continues to grow, their price is pushed up, increasing the value of potential losses.

Although farmers may be keen to enter into contracts to sell carbon credits, they should be aware that contracts are often very open and could leave farmers liable for large repayments in the event of a loss.

Losses can be unpredictable and on a large scale, meaning that the funds generated by selling carbon credits are inevitably exposed.

The market is reacting to this gap in cover, however. For example, Lycetts now offers enhanced woodland cover, which offers woodland owners protection against such large losses, allowing them to continue their operations, without the need for excessively large cash reserves.

This not only helps businesses to more effectively plan for the future but creates a degree of stability in an uncertain market.

Although woodland requires little maintenance, farmers should still take care to manage risks, from ensuring that fencing is robust, and well maintained, preventing unauthorised access or ingress of deer, to ensuring that all precautions are taken to limit the risk of fire.

A comprehensive woodland insurance policy which protects against major losses is not only a requirement of most grant funding, it is imperative to protect your business.

Don’t go it alone

There may be a temptation for farmers to take on the majority of the work involved with woodland creation themselves, from fencing to planting. But keeping the work ‘inhouse’ does not eradicate the risk.

It is a sad fact that lone workers in agriculture and forestry are the most at risk of fatal injury in the UK.

Farmers should ensure that they do not cut corners when it comes to their own health and safety, and to conduct the same risk assessments, take the same precautions, and obtain the same level of protection as they would for employees or contractors.

The hiring of subcontractors can be an attractive and cost-effective option for short-term forestry projects but farmers need to be aware of the difference between labour-only and bona-fide contractors.

Labour-only subcontractors work under the direction of the main contractor and will not have their own insurance, as they are regarded as employees. Bona-fide subcontractors differ in that they supply their own materials and work under their own control. As they are not deemed to be employees, they must possess their own insurance.

In the case of labour-only subcontractors, farmers need to ensure that they are included on their employers’ liability insurance and public liability insurance policy – and in the case of bona-fide subcontractors, farmers should check they have valid and appropriate insurance cover.

Claims in either case can be an extremely costly venture, no matter the outcome, so ensuring that sufficient cover is in place can be business-critical.

Farmers should also be wary of ‘calling in a favour’ from friends, family, or neighbours. If an incident occurs, and the injured party is not covered by an employers’ liability insurance policy, the farmer could suffer losses or prosecution.

Maintaining machinery

The government may have relaxed the rules around certain regulations and granted certain emergency extensions during the pandemic but one area that this did not apply to was machinery inspections.

Throughout the pandemic, the law governing ‘Lifting Operations and Lifting Equipment Regulations’ (LOLER) and ‘Provision and Use of Work Equipment Regulations’ (PUWER), along with the requirement for regular engineering inspections, remained in place.

With telehandlers and lifting equipment involved in almost 20 deaths in the agriculture, forestry and fishing sector in Great Britain over the past five years, it is clear to see why this is the case.

PUWER applies to all machinery, whilst LOLER only applies to lifting equipment, including 360 excavators, backhoe loaders, foreloaders, fork-lift trucks and telescopic handlers to hoists, cranes on machines, and lifting attachments.

Engineering certificates demonstrate that farmers have maintained the machine, that it is in good, safe working order, and suitable for further use.

Without due diligence, farmers can quickly find themselves at the centre of a HSE investigation – which could jeopardise the future of the farming business, as well as put a sharp stop to any new woodland venture.