Where your savings can take root and grow

Investing in forestry may not be the first option that springs to mind but, unlike other investments, it's not rocket science, explains Una McCaffrey

In the world of alternative and socially-responsible investments, forestry is rarely the first option that springs to mind. Trees, after all, hardly offer the thrill of the ethical equity fund, or the fun of the antiques showroom. Yet 82,000 Irish people have decided that for them, forestry investment is both appealing and rewarding, a group sufficiently large to suggest that the rest of us could be missing something.

Forestry, as an investment, has only really come to the fore in the Republic in recent decades, as successive governments have attempted to encourage the planting of trees. Just less than 10 per cent of the State is wooded, compared to an EU average of 31 per cent.

In an effort to bring the Irish coverage more in line with its neighbours, current policy states that profits made on forestry investment should be tax-free. This is the primary appeal for the smaller investor.

To date, the most active body in forestry investment is Irish Forestry Services, a company that has thus far succeeded in raising about €18 million over 10 funds, with the funds themselves attracting an additional €8.4 million in grants and €7.5 million in premia.

Irish Forestry Services asks all of its investors why they have chosen to put their money into forestry products, a question which generates interesting replies. Contrary to "green" expectations, the most common reason is the expected investment return of about 9 per cent, with ethical considerations coming ninth in a list of 10.

At the basis of this is the fact that forestry funds are easy for every consumer to understand, regardless of investment prowess.

From the investor's point of view, it is simply a matter of setting aside some money, giving it to a fund which pools it together with similar contributions, and then letting that fund use the cash to buy land. The next step is for trees to be planted on the land so that they can grow and, after 10 years, be sold at a profit. No rocket science here.

The amount of money needed to take part is also far from intimidating, with one share in a fund available for as little as €750. Shares can be purchased by an individual or a group, with Irish Forestry Services also allowing adults to buy on behalf of children. In the past, the company's funds have been subscribed to a value as high as €3 million.

Of this, about half has been used to buy bare land on which to plant trees, and the remainder on semi-mature woodland. After 10 years, the mature and semi-mature forest is sold to the highest bidder and the profits returned, tax free, to shareholders.

A non-financial advantage in the whole process comes in the Irish climate, which allows a 12-month growing season, making Irish trees the fastest-growing in Europe.

For investors seeking to take the plunge into forestry over the next few weeks, the place to look is the Fifth Forestry Investment Plan, which is currently projecting an annual return of 9.6 per cent over 10 years.

Getting involved is simple enough, with Irish Forestry Services usually dealing with investors directly, rather than through brokers.

As far as forestry investment in general goes, the main potential risk is that the trees into which you have pumped your money could fall prey to bad management. Sudden changes in weather, disease and fire could all devastate a crop, for example, so all eyes need to be on the task at hand.

There is always a security blanket underneath investment plans, however, in the form of insurance and EU support for reforestation.

The other variable to bear in mind is the forestry market. The current price for the wood produced by Irish forests is buoyant, but there is no guarantee that it will remain so a decade from now.

Irish Forestry Service: 01-2841777/www.irish-forestry.ie