Profitability/cost implications for farmers24th November 2010Daniel L SandarsResearch. Fellow daniel.sandars@cranfield.ac.uk

Motivation

• The introduction of woody belts onto farms is

potentially a significant financial investment and

commitment

• This is notwithstanding that are also numerous

intangible benefits:

• To the farmer of planting trees, for instance; rough

shooting, wind shelter, [real] estate enhancement, privacy,

and forestry products

• To society, for instance, landscape character, carbon

sequestration, biodiversity, and ammonia recapture

Aim

• The aim of our work is to systematically quantify cost

implications of novel woody belts on farms

• From here one has the basis to contemplate the

financial trade-off required in order to access the

other less tangible benefits that arise

Method

• The basic method for the analysis is the Discounted

Cash Flow

• This handles the uneven cash flow due to

substantial initial capital investment being offset

by long term benefits and costs

• It deals with the time preference of money – that

money today means more than money tomorrow

• We use a Treasury standard 3.5% but recognise

that it is a subjective term and consider the range

2.5-4.5%

Cost CentresOver view

• Obtaining the land

• Ground preparation

• Planting

• Staking & guarding the trees and or perimeter fencing

• Fertilising & spraying for weed control – first 5 years

• Routine maintenance activities

• brashing, thinning, hedge trimming

• Managerial oversight

Income streams

• Woodland Grant Scheme (England)

• Broadleaves £1800/ha and/or Conifers £1200/ha

with 80% payable on establishment and 30% 5

years later

• Farm Woodland Payment (England)

• £300/ha per annum for the first 15 years –ex

arable AAPS land

• Single Farm Payment

• £244/ha per annum

Timber sales

• Standing broadleaves

• Yield 2.3 m3/annum ≈ 0.1-0.14 m3 per tree @ 40

years ≈ £10 m3

• Standing conifers

• Yield 5.7 m3/annum ≈ 0.1-0.3 m3 per tree @ 40 years

≈ £10 m3

• NB: harvesting assumes a continuous cycle of thinning

and renewal from 40 years –not clear felling at maturity.

Shrub & hedge components are assumed managed as

part of maintenance costs

Tangible environmental benefits

• Carbon sequestration, £ 25/tCO2e

• The above ground biomass represents a

significant store of carbon over annual arable.

• From year 40 we assume that this is managed at

equilibrium – no net carbon sequestration

• Ammonia recapture, £1840/tNH3

• We assume that the canopy –recapture efficiency

grows linearly to achieve maximum annual

recapture from year 40

Downwind woody beltsKey scenarios

• We’ve looked at the cost implications of introducing a

number of woody belt scenarios onto typical farms

• The original 30 and 60m designs as drafted by

John Blyth for the AMBER project

• A revised and simple design originating from this

project (SAMBA) with variable central lengths and

also variable depths of back stop zone

Woodland chickensKey scenarios

To qualify for the Sainsbury’s premium at least 20% of

the range area has to be wooded

• Increase that to 100% cover over the paddock and

place variable lengths of down wind backstop around

it

• Leave the paddock cover at 20% and just add the

down wind backstop

NB The decision to plant the 20% cover and collect the

premium has been taken a priori

NPV Downwind woody belt. £k/ha

Design

Width of facility being protected

50m +(2* 25m

ends)

100m + (2* 25m

ends)

200m + (2* 25m

ends)

400m + (2* 25m

ends)

AMBER, 30m deep

design -£4 -£6 -£9 -£17

AMBER, 60m deep

design -£7 -£10 -£17 -£30

SAMBA, 5m backstop -£2 -£4 -£7 -£14

SAMBA, 10m backstop -£4 -£6 -£11 -£21

SAMBA, 25m backstop -£7 -£10 -£17 -£29

SAMBA, 50m backstop -£16 -£20 -£29 -£45

NPV for woodland poultry systems, £k/ha

Design Backstop only

80% tree cover+

backstop

SAMBA, 5m backstop -£2 -£2

SAMBA, 10m backstop -£8 -£7

SAMBA, 25m backstop -£12 -£10

SAMBA, 50m backstop -£22 -£17

1 ha Woody belt, 50m central section and 25m backstop zone

£-

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

Discounted Income

Timber Income

Single Farm Payment

FWPS

WGS

£-

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

Dicounted Costs

Opportunity Cost

Brashing/ thinning

Backstop maitenance

Managerial oversight

Planting costs

Perimeter fencing

Spraying

Fetilising

Ground preparation

Sensitivity to discount rate and agricultural opportunity costs

-100%-75%-50%-25%

0%25%50%75%

100%125%150%175%200%225%250%275%300%325%350%375%400%425%

0 200 400 600 800 1000 1200 1400 1600

No

rmalised

dis

co

un

ted

Net

Pre

sen

t V

alu

e

Annual agricultural opportunity cost, £/ha

2.5%

3.5%

4.5%

Higher discount rate reduce the burden of high

long-term opportunity costs, the converse is

true at lower values

Sensitivity –opportunity costs and subsidy

Total subsidy £6000 = £1500 establishment and £4,500

(15years * £300) maintenance. Scaling both parts

together.Subsidy of much >

threefold to make

competitive to arable

farming!

1 ha woody belt overall costs and benefits,£k/ha

Discounted Income Discounted ExpensesWoodland grant £ 1.4 Ground preparation £0.1

Farm woodland payment £ 3.5 Fertilising £0.2

Single farm payment £ 7.3 Spraying £0.3

NH3 abatement £ 92 Perimeter fencing £ 6.4

C sequestration £ 5.7 Planting costs £ 4.8

Timber Income £ 5 Managerial oversight £0.8

Backstop maintenance £0.2

Brashing/ thinning £ 1

Opportunity Cost £ 18

TOTAL £ 115 £ 32

Assumes 2* 50,000 place layer units shielded with a

downwind woody belt with a 25m backstop zone (1ha total area)

Internal Rate of Return 15%

Woodland chickens + trees costs and benefits, £k/ha

Discounted Income Discounted ExpensesWoodland grant £ 2.5 Ground preparation £0.2

Farm woodland payment £ 5.8 Fertilising £0.4

Single farm payment £ 6.3 Spraying £0.6

NH3 abatement £ 5.2 Perimeter fencing £ 3.0

C sequestration £ 9.3 Planting costs £ 7.9

Timber Income £ 9.2 Managerial oversight £1.3

Backstop maintenance £0.4

Brashing/ thinning £ 1.7

Opportunity Cost £ 15

TOTAL £ 38 £ 21

Extra 0.8 ha of broadleaved in the paddock + 25m downwind

backstop –total 1.675 ha new trees for 2500 layer-unit

Internal Rate of Return 6.9%

Key pointsFinancial

• As timber production units woody belts are not financially

feasible because of their small scale of organisation and

the high annual opportunity cost of sacrificing arable land.

• If by chance that arable opportunity cost is low because of

land quality or, in the case of woodland chicken,

production will not be affected then there is a better

financial case.

Key points-Environmental

• Once ammonia recapture and carbon sequestration are

accounted for there is a good public case to plant and

manage them. – IRR 15% and 6.9%

• Ammonia recapture is the dominant term for woody belts

around strong point source emissions. Carbon

sequestration is useful but reaches steady state (no

further gain) from year 40.

• Poultry account for 14% of the UK NH3 emission and

housing is 50% of that!

• For woodland chickens the honours are equally divided.

End

Obtaining the land?

• We have used the Silsoe/Cranfield Whole Farm

Planning model

• The model calculates the maximum profitability of a

farm subject to its constraints and agro-climatic

situation

• The annual opportunity cost of obtaining land is

obtained by forcing the model to have 1 ha of un

cropped land compare to the profit of the unrestricted

case

Obtaining the landdetail

• We assume median farm of 250ha of the following

types:

• Arable & arable with root crops

• Dairy with arable & dairy with arable and forage

maize

• To give a reasonable coverage of scenario we

assume light, medium and heavy soils with 600, 900,

or 1200 mm annual rainfall.

• The financial data comes from NIX and ABC 2009-

2010 costings books

Reduction in profit for 1ha - Arable

Arable

Soils

600 900 1200

Light -£572 -£555 -£522

Medium -£705 -£660 -£600

Heavy -£740 -£665 -£585

Arable & Roots

600 900 1200

Light -£887 -£830 -£741

Medium -£904 -£820 -£706

Heavy -£768 -£674 -£587

Mean annual rainfall, mm

Reduction in profit for 1ha - Dairy

Dairy

Soils

600 900 1200

Light -£846 -£875 -£732

Medium -£985 -£1,063 -£991

Heavy -£1,106 -£1,162 -£1,023

Dairy & Forage Maize

600 900 1200

Light -£580 -£568 -£542

Medium -£714 -£755 -£674

Heavy -£775 -£836 -£793

Mean annual rainfall, mm

Opportunity costs, £ha1995, 2002, & 2010 in current terms

Arable

Annual Rainfall, mm

Soil 600 900 1200

Light 544 (516 to 572) 580 (554 to 607) 602 (521 to 682)

Medium 595 (485 to 705) 618 (577 to 660) 633 (600 to 665)

Heavy 601 (463 to 740) 610 (556 to 665) 593 (585 to 602)

Dairy

600 900 1200

Light 723 (423 to 900) 772 (366 to 1074) 754 (313 to 1218)

Medium 755 (381 to 984) 822 (334 to 1070) 829 (284 to 1213)

Heavy 781 (325 to 1106) 846 (289 to 1161) 813 (256 to 1160)

Planting costs detail

• Ground Preparation using farm resources

• Spray off weeds, subsoil, apply base fertiliser,

and plough -£110 (£52-253)

• Planting

• Broadleaved 2.5 ‘000/ha @ 32p each

• Conifers 2.5-10 ‘000/ha @ 21.5p each

• Shrubs 4.4 ‘000/ha @ 33p each

• Hedge 10 ‘000/ha @ 31p each

• Labour: 56 plants/hr @ £10/hr

Tree protection costs

• Choose the cheapest of:

• Perimeter rabbit-stock proof fencing @ £7/m, or

• Tree guards and stakes @ 42.5p each and 56

trees guarded and hour @ £10 hr for labour

• NB stronger measures will be needed for serious

deer nuisance

• From year 5 assume a 2% of initial cost maintenance

charge c. £22/ha per annum

Other costsdetail

• Weed control £38/ha in the first year followed by £68

for the next four years to allow for knap sack spot

spraying

• Fertilising £115/ha in the first year followed by £25 a

year for the next four years

• Brashing/ hedge maintenance –from year 15 assume

£77/ha per annum charge

• Managerial oversight £119/ha for planting and then

£22/ha per annum there after