CAP Reform – Snippets of Value

CAP reform – snippets of value

The new 2015 subsidy scheme has already created a number of opportunities to prepare for and problems to manage.

 

Active farmers

36ha is all you need in England

Farmers in England with more than 36 eligible hectares (ha) will now be accepted into the Basic Payment scheme irrespective of any excluded activity. Farmers receiving under €5,000 are exempt from the exclusion. €5,000 corresponds to roughly 20ha in the main English Region and about 50ha in the moorland area.

What about those with 20 to 30 ha?

There is a risk of exclusion for a few diversified businesses between 20 and 36 ha. The biggest risk is likely to be for small entrepreneurial businesses operating say a riding school, children’s play area or open gardens with a viewing stand, WCs or café, particularly if they also have other non-agricultural income. Re-entry is still possible if income from all non-agricultural activities is below around £4,000 per ha per year. Unfortunately, even agricultural contracting is counted as non-agricultural income making it difficult for some farmers to reapply. One small change that may help is that contrary to earlier guidance Defra will announce that the income is no longer considered gross of VAT.

For many the simple solution will be to rent in additional land to meet the 36ha requirement.

Young Farmer top–up for the UK

How much?

Depending on demand, young farmers / new entrants may qualify for an additional 25% subsidy on up to 90ha in England, Scotland and Northern Ireland and 25ha in Wales. Payment will be for up to five years. This could provide as much as £4,500 per year in the main English region.

Who?

The payment is made for the first five years after setting up in business (or remaining years if set up prior to application) providing the applicant is aged under 41 at the time of application. The new entrant needs to be in control of the business. For a company this means ownership. For a partnership the rules remain unclear but look likely to require them to be the major capital account holder but not the party that receives the greatest profit share.

An application will require verification by an accountant and various other accompanying confirmatory documents such as tenancies, bank accounts and VAT registrations. The scheme is designed to encourage new entrants so a new business would not be subject to the risk of loss of subsidy through ’artificiality’ (the terms used to penalise those who artificially created conditions solely to obtain additional subsidy).

Entitlement establishment and value

What’s the problem?

For most farmers establishment of entitlements is straightforward but if land is not in agriculture in 2015, perhaps because a pipeline was being dug or land was let for a one-off event such as an agricultural show, the entitlements on the area used look likely to be lost. Defra is thought to be arguing to extend force majeure but this looks unlikely to be possible where the loss of land in 2015 has been planned. Compensation from the occupier needs to cover the loss of entitlements.

Why not sell in 2015 and buy back in 2016?

Unfortunately, there are more sellers of entitlements pre 15 May 2015 than buyers so entitlement values are likely to fall and we expect entitlements to fall in value to under £50 each (making it worth acquiring those extra entitlements if short).

Post May 2015 entitlement values are likely to recover at least in the short term until new entrants acquire entitlements from the national reserve, which will once again result in a surplus of entitlements over land area and lower entitlement values.

Those occupying land for one year might even be paid to lease in entitlements for a year.

 
 

Key contacts

Andrew Wraith

Andrew Wraith

Director
Food & Farming

Savills Lincoln

+44 (0) 1522 508 973

+44 (0) 1522 508 973