Sheep run free-range around the entire island, if you'd like to grow something that sheep like to eat you need to fence it in. It's not like pretty much anywhere else in the western world where people who own grazing animals need to fence them in.
Thus the sheep range far and wide and destroy Iceland's native low-lying forests. Iceland's native crooked birch hasn't developed resistance to grazing animals as mainland trees had to do, the sheep love to nibble at them and eat the seedlings.
The native trees and other native vegetation are generally much hardier than the foreign plants. But since the forestry service has lost the battle with the farming lobby they're desperately trying to introduce some trees that the sheep won't eat.
Reforesting the country is largely being done through subsidies to farmers, who aren't concerned with topsoil preservation beyond maintaining the desolate landscape they inherited, but they are interested in the eventual promise of a commercial forest on their land.
Which is something to keep in mind when reading articles like these and wondering "why don't they...", usually the answer is that they're planting in a field that's going to be full of grazing animals, and there's no way the forestry service is going to win that battle anytime soon, or that they're not really aiming to restore the topsoil per-se, but to do that as a side-effect of commercial logging.
This page has some more details: http://www.skogur.is/english/forestry-in-a-treeless-land/