working paperThe period 2007-2009 witnessed considerable variability in the price of outputs such
as milk and cereals and this was compounded by a high degree of volatility in the
price of inputs such as fertilizer, animal feed and energy. Previously, Irish farms have
used the returns to off-farm employment as well as agricultural support payments
such as the Single Farm Payment (SFP) and the Rural Environmental Protection
Scheme (REPS) to protect their living standards against low and uncertain agricultural
market returns. However, the downturn in the Irish economy has led to a reduction in
the availability of off-farm employment and also the discontinuation of REPS. This
may lead to an increase in afforestation on Irish farms, as forestry offers greater
certainty through the provision of an annual premium in addition to the SFP.
However, the decision to afforest represents a significant long-term investment
decision that should not be entered into without careful economic consideration. The
aim of this paper is to use the Discounted Cash Flow (DCF) analysis method to
calculate the returns to forestry under alternative opportunity costs associated with
conventional agricultural activities being superseded. The returns to forestry are
calculated using the Forestry Investment Value Estimator (FIVE). These returns were
then incorporated in the DCF model along with the returns to five conventional
agricultural enterprises, which would potentially be superseded by forestry. This
approach allows for the calculation of the Net Present Value (NPV) of three forestry
scenarios
