A new £36 million-a-year subsidy regime designed to support Scotland's forestry industry to be introduced this month is "insufficient" and will not ensure the long-term viability of the £1.7bn sector, industry leaders have warned.

Representatives of sawmills, wood product makers, forest management companies and trade associations have told the Sunday Herald that unless more land is set aside for forestry the industry will start shrinking from 2030 onwards.

The new EU-derived subsidy, known as the Scotland Forestry Grant Scheme is part of the £1.35bn Scottish Rural Development Programme 2, which was described last month by environment secretary Richard Lochhead as: "providing crucial support for Scottish farming, food production, rural communities and the environment".

Gordon Callander, the managing director of one of Scotland's largest sawmills James Callander & Son, describes the expected shortage of timber production as the "biggest problem facing the industry at the moment".

"Unless a solution is found there will be considerable processing over-capacity in the sawmills and sawmills will close," he warned.

The commercial timber industry is worth £1.7 billion year to the Scottish economy and supports around 40,000 jobs. But the industry is threatened with sharp decline unless more trees are planted to compensate for the newer, less intensively-planted and less productive woodlands created under stricter environmental rules imposed since the 1970s.

In addition, large tracts of woodland across Scotland which have been felled over the past decade to make way for windfarms have not replaced.

Colin Mann of forest management firm Scottish Woodlands said that the planning process required for new forests as well as the replanting of felled woodland had become "extraordinarily thorough" in recent years with complex requirements governing the design of forests and the diversity of species.

Extensive consultation with environmental NGOs such as SNH, SEPA and the RSPB also slows down the process, meaning that it now takes two to three years to receive the necessary permissions to plant a new forest.

As a result potential investors and hillside sheep farmers thinking of making over their land to forestry are put off. "We are now in danger of losing forests," he said.

Mann said he expects the new £36m Scotland Forestry Grant will have a "positive stimulus on woodland creation" but will not solve the medium to long-term problem of a shortage of timber production from the 2030s onwards.

Buoyed by strong timber prices in recent years, foresters have been felling more than they have been replanting, chopping their way through the large amounts of trees that were planted in the 1970s and 80s, when generous tax incentives encouraged the planting of large plantations.

But tree planting dropped from the 215,000 hectares planted between 1981 and 1990 to just over 40,000 hectares over the following 20 years. It is this smaller crop from trees planted from the 1990s onwards that will come to maturity in the 2030s.

Gordon Callander said he did not oppose the "green tape" that requires forests to be planted in an environmentally sympathetic way, as the monoculture square-edged forests that were planted in the post-war years in the UK were often badly designed and were foisted on hillsides with little regard for their visual impact.

"But this is an argument that has now gone far too far", Callander said. "I suspect that 99 per cent of the general public would not notice whether the trees being planted in forests were mostly commercial or not. The UK forest industry has had remarkable success in recent years: it would be tragic to lose our market share."

Callander said that, to placate a "small vociferous environmental lobby" only a quarter of the area of a recently planted forest close to Crianlarich had been planted with commercial species of trees: the rest of the woodland was made up of open space and non-commercial species. The result is that far less timber will be harvested from the forest when the trees come to maturity.

Forestry currently accounts for 18 per cent of Scottish land use, but the Scottish government wants to increase this to 25 per cent by 2050 and the main aim at the moment is to create 100,000 hectares of new woodland in the decade to 2022.

Stuart Goodall, chief executive of the trade association Confor, said that that target, agreed in 2012, was already behind by 35 per cent based on an annual need for 10,000 hectares to be planted each year.

Goodall says that the £36 million a year of funding for the new forest grant scheme was "insufficient to meet the Government's own targets and what the sector needs". £30m of the £36m of the new funding scheme is dedicated to new woodland creation but Goodall says that this will only allow 6,000ha of new woodland to be planted a year rather than the annual target of 10,000ha.