The entitlement market has already kicked off this season. Many landlords, tenants and their agents have recently been negotiating end of tenancy arrangements, and entitlements have of course been in discussion. In England the oversupply of Non-SDA seen last season should now have gone as surplus unused entitlements have reverted to the National Reserve meaning that, in an ideal world, the number of entitlements should match the eligible hectares claimed in 2015. Although there should simply be a rearrangement of entitlements between landlords and tenants, other factors will also be at play, such as land going for development, the recent decision over the notional area calculation for commons, reclaimed land becoming eligible, and any number of other factors that influence the availability of eligible area in the UK.
Historically the market has begun trading between September and October each year and trickled along until the New Year when claimants receive their payments and have available funds to purchase additional entitlements. This year looks to be no exception, although trade has been thin and delayed, the likely delay of the payment of 2015 BPS claims until 2016 will continue to have an impact on activity.
We are now close to finding out exactly what the 2015 payment values will be, hopefully in November. We now have the exchange rate for 2015 and once we have the payment values also, these figures will give us a good idea as to the likely value that will be paid for the 2016 claim, which should help settle the market price for entitlements. Although the RPA speculated as to likely values some time ago (Non-SDA: €244, SDA: €244 & Moorland: €70), the actual payment for 2015 will depend on the number of applicants this year and the total eligible area claimed. Of course entitlements are ‘revalued’ annually, which takes account of minor changes to the number of hectares claimed, however the 2015 claim payment should provide a good idea of the further BPS payments in years to come.
The September average exchange rate has now been confirmed by the European Central Bank at €1: £0.73129 and taking this into account we predict the following figures for this season’s payment. This exchange rate is a drop of 5.9% compared with the 2014 exchange rate of £0.7773, however it remains to be seen what the actual values will be in this first payment for the Basic Payment Scheme.
English Region 2015 (£) Predicted Payment per ha
There has been some debate recently about the purchase price for entitlements and what this should be this season with at least four more years of claims to come. Looking back to 2006 at the start of the previous scheme we see that entitlements commanded a multiplier of between 1.5 and 2.5 times the value. However in recent years the market has been used to trading at around one times the value, with some adjustment then for supply and demand. This of course does not take account of the anomaly experienced over the Christmas of 2013 (for the 2014 Scheme Year), when it was announced that entitlements in England would ‘roll over’ into the BPS. However with commodity prices as they are it would seem unlikely that prices would reach those ‘dizzy heights’ (£300/ha) once more this season. We have now agreed the first sales for the 2016 Scheme Year with prices at £200 per unit plus VAT for Non-SDA, however it would seem that the market rumblings are such that there is scope for this to increase as the season develops and the market ‘beds in’.
As previously mentioned, last season saw the withdrawal of surplus unused entitlements to the National Reserve, and this should have the effect of keeping prices up above the low levels they ended in June this year (£50-£100/ha). Certainly we are currently seeing more demand than supply for Non-SDA entitlements, however it remains to be seen whether this is truly representative of the season to come, as vendors currently have little incentive to come to the market as they would have to wait some time for the RPA to process 2016 transfer forms. As yet they have only confirmed a fraction of the transfers submitted during the 2nd window of last season’s trading.
Similarly it is likely that we will see a delayed trading this season due to the late payment of the BPS that we all hope will be paid early in the New Year, which many will be relying on not only for their day to day business but also if they need to fund the purchase of additional entitlements.
Both the SDA and Moorland markets saw significant shortages last season which, combined with the increased payments for both these regions, saw average purchase prices of £150/ha for SDA and £60.50 for Moorland, with Moorland topping out at £65 per unit. On the basis that any surplus will also have been withdrawn to the National Reserve in these regions, it will be interesting to see whether further shortages occur this season and whether the price increases as a result.
2016 ENTITLEMENT HOSTING
The market for hosting has been in decline in recent years and this was only accentuated following last season’s very low Non-SDA price, which saw those with ‘surplus’ land without entitlements taking advantage of this situation and purchasing entitlements for their shortfall thus reducing the amount of “naked acres” available. Despite this we still have a number of landowners with naked acres and some clients with surplus entitlements looking to arrange hosting this season. Prices are as usual expected to resemble slightly more than half the BPS payment, on the basis that the landowner will also have the agent’s fee to cover. The hosting fee should therefore effectively represent a net split of the BPS payment to either party, say £40 per acre.
USEFUL POINTS OF NOTE FOR THE 2016 SCHEME YEAR
2016 Entitlement Transfers
RLE1 forms can now be submitted for 2016 transfers with the expectation that online transfers will become available at some point next year.
The 2016 entitlement transfer deadline has been confirmed as the 16th May 2016, as the 15th is a Sunday.
The ‘active farmer’ declaration on 2015 BP5s is only relevant for the 2015 Scheme Year (up to 31st December 2015) and we are hoping the RPA will provide a simpler mechanism for making the ‘active farmer’ declaration for 2016. Entitlement transferees must be ‘active farmers’ in order to receive entitlements.
Where entitlements and land are being transferred, separate RLE1 forms should be used for each element (land and entitlements).
2016 BPS Claims
These will be able to be submitted either online or using paper forms. There will be no mandatory online submission for 2016.
New Entrants & Young Farmers
It is an EU mandatory requirement that Member States provide methods for Young Farmers and New Entrants to obtain National Reserve entitlements in each year of the Scheme. Therefore applications can be made again this year.
Common Land Recalculation
The RPA have now published the list of commons that have unallocated eligible area that should have previously been allocated to those using the common. This list can be found here. The application form appears to be relatively straight forward for those that are continuing to claim on land they established entitlements on in 2005, however for those in more bespoke situations, the RPA have simply provided a basic form for ‘additional information’ to be submitted in order to put forward your case in these other scenarios. The form can be found here. Claimants with more complex situations are advised to seek advice on submission of their case to the RPA.
There is also the issue of the submission date. Whilst there is no deadline for submitting the form, commons claimants are advised that if they submit sooner than later (and if possible by the 31st December 2015) the RPA will be more likely to confirm the allocation of additional entitlements by the spring, enabling the entitlements to be made available prior to the 2016 BPS transfer deadline. This would then enable any surplus to be sold if necessary, or included in the 2016 BPS claim.
We have a specialist team dealing with these commons applications and anyone having difficulty with the form is advised to contact Chris Allen for further details of how we can assist you.
The Welsh entitlement market is yet to get underway, as farmers are yet to receive their allocation of entitlements for the new BPS scheme. The Welsh Assembly has suggested that this process could take place as late as Spring 2016! With this in mind, the entitlement transfer period is expected to be short in comparison to other years, which may supress trade for the 2016 season. It is unlikely that trade will be so active, as the allocation of new entitlements should have matched the eligible areas for 2015 and therefore will be more closely aligned for 2016 needs.
The current value of Welsh entitlements remains unclear, although the Welsh Assembly has announced that definitive entitlement values will be sent to all farmers by April 2016. It has been announced that historical payments will be phased out, with a flat rate payment to be reached in 5 annual steps by 2019, although specific details are still to be released. A redistributive additional payment of €119 per ha will be made on the first 54 ha, which is intended to ‘soften the blow’ for those that will be worse off under the new scheme. It is claimed that two thirds of Welsh farmers will be better off by 2019 under this new regime, compared with the continuation of the SPS.
Similarly, the Scottish entitlements market is yet to kick off. As with the Welsh scheme, Scotland is yet to allocate entitlements as this process is reliant on the 2015 claim forms being processed. Announcements from the Scottish Government suggest that these forms are unlikely to be processed in their entirety by the New Year, and are advising farmers to plan ahead for late payments. The anticipated flat rate payment rate is €145/ha in Region 1, €25/ha in Region 2 and €5/ha in Region 3, and this figure is then coupled with a historic element which is being phased out in four 25% steps starting in 2016. The historic element is based on the average value of SPS entitlements held as at 15th May 2014. Due to the delays in the processing of 2015 claims, the trade of entitlements is likely to be impacted, with a shorter transfer period anticipated.
Entitlement trading in Northern Ireland is under the same constraints as both Wales and Scotland. The allocation of entitlements is yet to take place as the number of entitlements allocated to farmers will be equal to the number of eligible hectares declared on their 2015 claim. DARDNI is yet to report when they are likely to process these forms, although it is thought that they will be completed by early 2016. In terms of entitlement values for 2015, it is anticipated that the regional average payment (including greening payments) will be approximately €329/ha, with young farmer’s eligible for further payments at an extra 25% on up to 90ha. DARNI has announced that the window for the transfer of entitlements will close on 2nd May 2016, meaning that the window length will be dependent on when farmers receive notification of what entitlements they have been allocated.
If you have any queries about entitlements in any of the UK regions, please do not hesitate to contact Hugh Townsend for Non-SDA, and Dominic Rees for SDA, Moorland, Welsh, Scottish & Northern Irish.