Ireland Tries to Cut Debt through Privatisation
In February, Ireland announced plans to raise as much as €3 billion (£2.5 billion) from the sale of state-owned assets, as the country seeks to regain its economic sovereignty. As part of the privatisation plan, the government said it will consider selling state forestry company Coillte, or rather its timber-harvesting rights, for a period of up to 80 years. Amid the unabated controversy surrounding this plan, economist Peter Bacon published a report ‘Assessment of the Consequences of the Proposed Sale of Coillte’s Timber Harvesting Rights’ examining the government plan and its potential impact on the timber industry and the country’s supply of the raw material. As the Irish Examiner reported on March 28, Bacon outlines in his report that Coillte and much of the country’s timber industry are in line to become victims of Ireland’s attempt to reduce debt.
In his report, Bacon holds out the prospect of a foreign buyer exporting the timber without processing, the Irish Examiner noted. According to the author, a new private owner of the harvesting rights could also maximise short-term gains from their forestry investment by adjusting the timber supply to the price movements on the market. Either way, a shortage of timber supply to the domestic market could seriously set back the potential of the Irish forestry sector and decimate the country’s sawmilling industry.
Coillte to Remain Irish Timber Industry’s Mainstay
Ireland has 750,000 hectares of forested land, 351,000 hectares of which are managed by Coillte. The remainder is held by private owners engaged in forestry investment and timber production. Bacon’ report explains that even though the area planted has decreased, and is now below national targets, the private sector has continued to plant up to 10,000 hectares per year, while Coillte is replanting 6,000-7,000 hectares annually after harvesting its forestry. Yet, net afforestation by Coillte has fallen almost to zero in the past decade.
Despite this trend, Coillte’s role in Ireland’s timber industry cannot be underestimated, Bacon pointed out in his report. Private forestry plantations in the country have been on the rise for almost two decades, and according to estimates, timber supply from the private sector will increase over the next ten years as more and more companies opt for forestry investment in the country. Yet, most privately owned plantations are less than 15 years old, meaning that they still have not reached maturity for harvest. Consequently, Coillte is almost the only source of supply of large diameter mature timber, and will maintain its position as the mainstay of the Irish forestry industry up to and beyond 2030, the ‘Assessment of the Consequences of the Proposed Sale of Coillte’s Timber Harvesting Rights’ report states.
Bottom Line – Two Problems Arising Out of Coillte’s Sale
According to Bacon, the sale of Coillte’s timber-harvesting rights would represent an abrupt change, which could disrupt the processing sector due to a lack of certainty of future supply. He foresees two problems for the industry arising from the sale of the state company crops. Firstly, the economist remarks that a potential foreign buyer might export the timber without processing. Secondly, a new private owner would be unlikely to commit to placing a specified amount of timber on the Irish market each year like Coillte does. The report points out that the evidence suggests that private plantation owners are more likely to attempt to maximise short term gains from their forestry investment by increasing supply when prices rise and decreasing it when prices fall.