Woodland planting – the risks and rewards

Financial instability, industry volatility and yield uncertainty has forced the hand of farmers to tap into other streams of revenue.

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Traditional means of bolstering income include renewables, letting farm buildings, and rural tourism, but now many farmers are branching outside of the conventional diversification options and choosing more resilient and sustainable sources of supplementary sustenance, such as woodland planting.

The passive income-generating potential of underutilised or low-grade land has largely driven the popularity of this trend. But there are other reasons why planting trees is taking seed.

Scotland – leading the way

The climate change klaxon is growing ever louder, with world leaders coming together recently in Glasgow for the COP26 summit in a global effort to accelerate environmental action towards a low-carbon future.

Green initiatives have indeed ramped up in recent years, such as widespread tree planting in the Scottish uplands as a flood prevention measure, but the omnipresent threat of climate change is expediating government-led green goals and gains.

Scotland is a key player in the UK’s plans to counter climate change, with 80% of all new planting taking place in the region, and Scotland recently committing to increasing its yearly targets from 12,000 hectares to 18,000 hectares of new woodland each year by 2024/5.

From flood prevention and promoting soil health to biodiversity and carbon sequestration, woodland planting is front and centre of the domestic road to zero and this is reflected in the monetary support being pumped into projects to encourage uptake amongst landowners. For example, the Scottish Government is investing £150 million into meeting its enhanced planting targets and ensuring there is capacity in tree nurseries.

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In addition to generous government support and incentives, landowners may stand to gain from potentially lucrative carbon credit contracts, increased land values and timber yields.

The good news is that there is a woodland design and system that will fit just about any type of ground. With 75% of farmland in Scotland classified as Less Favoured Area, opportunities abound for landowners to maximise business productivity by adding value to underproductive land.

It is easy to see why woodland creation is attractive to Scottish farmers but it comes with a caveat – risk. In order to launch, successfully manage and reap the benefits of a woodland project, farmers need to be judicious in their planning and robust in their risk management.

Carbon credits – risk vs reward

Carbon credit contracts can frequently favour the buyer, leaving woodland owners exposed, with very little in the way for protection against their liability to re-pay or replace any lost carbon credits. Extreme weather events due to the well-documented effects of climate change has further increased vulnerability.

Moreover, if, as predicted, the demand for carbon credits continues to grow, their price will be pushed up, increasing the value of potential losses. Though the potential gain is significant, oftentimes carbon credit contracts are very open, leaving farmers liable for large re-payments in the event of a loss and leaving land tied up in forestry for multiple generations.

Loss can be unpredictable and on a large scale, meaning that the funds generated by selling carbon credits are always exposed. With financial instability the main driver of diversification into woodland planting, carbon credit contracts could further compound an already precarious situation for farmers.

However, the market is reacting to this gap in cover, such as enhanced woodland cover, which offers woodland owners a degree of protection by allowing them to continue their operations, without the need for excessively large cash reserves. This not only helps farmers with business forecasting but creates a degree of stability in an uncertain market.

Subcontractors – understanding the difference

Woodland planting is a significant undertaking and farmers may choose to hire subcontractors to assist with the establishment and maintenance of a forestry project.

However, the issue of having the right protection can often be a cause of confusion and farmers can be left exposed to costly fines and protracted legal proceedings through lack of knowledge or gaps in cover.

Understanding the distinction between subcontractor types is critical. 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 employees, they must possess their own insurance.

Farmers need to ensure that labour-only subcontractors are included on their employers’ liability insurance and public liability insurance policy. The first protects businesses in the case of an employee claim and the second covers against third party claims. Whilst employers’ liability insurance is a legal obligation, and carries a fine for non-compliance, public liability is optional – but equally as vital. But in neither circumstance is a farmer necessarily exonerated from liability, should an incident occur.

Though bona-fide contractors are responsible for acquiring their own public liability cover, and employers’ liability insurance if they employ staff, it is important that farmers verify that the relevant cover is in place as a prerequisite to hiring. This evidence protects farmers against being held liable in the future, should a claim be made against the subcontractor.

Machinery – understanding the dangers

Agriculture, forestry and fishing holds the consistently unfavourable title of being the UK’s most dangerous industry to work in, with 41 workers killed in the past year (2020/21).

Machinery is a common factor in many deaths in the industry, year after year, with 50 people killed by moving vehicles, including telehandlers, in the past five years, accounting for almost a third of deaths in that period (30%). A further 13 deaths occurred as a result of contact with machinery, such as powered machines, and 11 people were killed after being trapped by vehicles, machinery or equipment collapsing.

These figures are a stark reminder of the vital importance of ensuring machinery is fit for use, by having all of the necessary checks routinely completed, including thorough examination and testing (TE&T) of machinery, by qualified professionals. TE&T is critical to ensure the safe operation of equipment, as failure of machinery through deterioration can create dangerous situations, physical harm and business disruption.

Engineering inspections are conducted to ensure that the machinery meets the requirements set out by health and safety law, such as ‘Lifting Operations and Lifting Equipment Regulations’ (LOLER) and ‘Provision and Use of Work Equipment Regulations’ (PUWER).

Therefore, obtaining certification demonstrates that farmers have maintained the machine, that it is in good, safe working order, and suitable for further use.

Whilst health and safety certification is paramount from a legal perspective, it is also important from the standpoint of a responsible and conscientious business owner. Farmers should always take steps to familiarise themselves with any new piece of forestry equipment and ensure proper, safe practice of operating by themselves and employees. Cutting corners, delaying inspections or improper use of machinery could land farmers at the centre of a prosecution case and quickly spell the end of any new business venture.

Ensuring that all machinery – old and new – has the appropriate level of insurance is also essential. The market has seen options for machinery and plant insurance scaled back, driven by the hardening market and a reluctance from insurers to continue to underwrite poorly performing categories of business, so seeking specialist advice from a broker could be a diligent and prudent decision.

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