The economics of farm afforestation in Ireland

Abstract

In recent years, afforestation in Ireland as in many European countries has fallen well short of policy targets. Previous studies which address the decline in farm afforestation focus on either the economic or the behavioural reasons in isolation. This thesis takes a holistic view of the inter-temporal land use change decision necessitated by the consideration of afforestation on farms, by analysing the physical, economic and behavioural drivers of afforestation, using a longitudinal (30 year) NFS dataset. The spatial distribution of non-industrial private forests (NIPF) in Ireland is examined from the perspective of the influence of soil quality. In examining the relative returns to agriculture and forestry, the market and subsidy components of the economic return are examined individually. The complexity of the relationship between agricultural and forestry subsidies is disentangled using a hypothetical farm framework and reveals that agricultural and forest incentives were conflicting for much of the period examined. The market return to forestry is investigated using a bio-economic model which generates optimal rotations, incorporating agricultural (market and subsidy) income as the opportunity cost of afforestation. This reveals a wide variation in income when different soil quality, opportunity costs and rotation optimisation criteria are taken into account. Insights into the behavioural aspects of the afforestation decision are gained by building a structural model based on revealed preferences which considers the utility maximising choices made by a representative sample population of farmers within a life-cycle theoretical framework. The findings show that on balance, farmers act rationally in preferring to farm than to afforest land, even if the income from forestry is higher. There is solid evidence that the gain in (forest) income is not sufficient to off-set the decrease in agricultural income, perceived decline in wealth and loss of utility derived from farming. In examining the underlying heterogeneity in relation to farm and farmer characteristics, it is evident that farms with higher forest income streams are significantly more likely to have afforested land and to consider forestry in the future, but 84% of farmers will not consider afforestation, regardless of the financial incentives. Farmers who have planted are categorised according to the level of farming intensity after planting and three typologies are presented i.e. older “de-intensifying” farmers who are maximising subsidies, younger “intensifying” farmers who are optimising their land resource and “diversifying” part-time farmers who are optimising their time. This thesis confirms that while financial incentives are significant, they are not strong enough on their own to incentivise increased planting. Given the increasing pressure for sustainable intensification of agricultural production, potential incentive schemes to mitigate agricultural GHG production through further afforestation must recognise that that a more targeted approaches which incorporates farming and lifestyle objectives may be necessary to improve the uptake of farm afforestation in future.