Future of Entitlements

Whatever happens after the Basic Payment Scheme, those that are involved now, that have entitlements, are most likely to benefit from any new scheme in whatever form it takes. As we finalise publication of our UK BPS Entitlements User Guide, the research in preparing this has shown that quotas and subsidies have a long history in the UK going back to the late 19th century, and reinforces my own experience of thirty years, that those that “have” under a current scheme will get more, and those that “have not” will get nothing. One important question though about BPS entitlements is whether they will be worth less and less to sell as we near the end of the current scheme. The best example we have is with entitlements when the SPS came to an end in 2014, and whilst perhaps now there is a greater threat of dramatic reform to the current subsidy scheme, it should not be forgotten that following the announcement of a “rollover” for English SPS entitlements to the BPS in October 2013, Non-SDA SPS entitlements prices rose from £210 to £300 a hectare. On the premise therefore that there will be a follow-on subsidy scheme after BPS, as with the end of SPS, we are likely to know in advance what this is going to be which will then most likely underpin the price for the last seasons of trading BPS entitlements, i.e. in 2018/2019.

Entitlements in 2017

Taking a hard-nosed approach, the predicted 2017 BPS payment in England is £209.60 per hectare for Non-SDA (based on €1 to £0.84 exchange rate as at 20.12.2016) which suggests entitlements now selling at £200 per hectare are cheap. The payment for 2016 is £212 per hectare and therefore, on either count, a 2017 purchase remains financially a “no-brainer”. It is likely you will break even or make a profit in year one, and we know for certain there will be a further year of BPS payment in 2018. Subsequently, if you have land at your disposal, there are very few other things you can invest in whereby you can double your money in two years. In this sense, therefore, whatever you think may happen in year three, 2019, when the Chancellor has promised to “match the funding” that the EU gives to the UK (although of course he has not been able to say whether we will still be in the EU in 2019 or, if not, whether he will adopt a similar UK scheme matching the current BPS scheme to use the funds), 2017 entitlements should retain their value whatever their future is after 2018. Therefore it makes very little difference to 2017 trade what will happen to entitlements in 2019 or thereafter under a new scheme, whenever it might come in, when we leave the EU. A more interesting trading period for entitlements will be for the 2018 scheme year as by then we should have more detailed information after Article 50 has been served in March 2017. As always predicting the trading price for entitlements is problematic if not impossible, however we are going to see again this year the Commons claimants adding the same amount of volatility at different stages in the trading period as they make adjustments with the RPA producing and correcting on an ongoing basis the relevant eligible areas.

Will the UK support agriculture?

Of course perhaps the more fundamental long-term issue for Government is that the UK, for the first time in forty years, needs to decide whether they should support agriculture. For any farming business where investment decisions are by their nature long term, this is what will affect the land market and the general activity of farming businesses moving forward. An unanswerable question? My only comment at this stage is that it is all about what trade deals can be entered into, what import and export tariffs will be set which then, as with the Corn Laws (1815-1846), depend on worldwide prices for commodities at the time. We saw following the CAP reform in 1992 the EU having to set rates of subsidies based on commodity prices at the time. Some say they were too generous and got it wrong, and as a result UK agriculture benefited from a number of boom years until BSE in 1996. Until we reach the date when the UK actually sets any subsidy rates we will not know the true impact as everything will depend on the commodity prices at the time. This therefore is impossible to predict, unless the Government wishes to jettison the more recent policy of providing longer term support for farming, and sets a variable subsidy rate each year, which was the situation in the late 19th century, early 20th century.

2017 UK entitlement trade

Trading began at the beginning of October, effectively a month later than last year, and “kicked off” at £200 per hectare, the same level as last year. However without the fear there was last year that there could be a shortage of entitlements following the 2015 “use it or lose it” year, the market price by mid-November weakened to £190 per hectare for VAT registered Non-SDA sales but in the last few days has rallied back to £200 per hectare. Trading volumes are slightly down, but this could give a false impression as to the underlying demand, as we have had an unusually good Indian Summer and farm businesses are making the most of this before turning their attentions, on rainy days, to paperwork and preparation for the 2017 claim. The start of the 2016 BPS payment window so far has had no effect on the market, although this could change as the volume of payments increase and action is then taken. There has not been any trade yet in SDA or Moorland, Welsh, Scottish and Northern Irish entitlements. A bullish year however is still predicted due to the devalued pound and the increased payment for 2016. In England the scheme rules are not expected to be amended but will not be finally published, as always, until the New Year, and the RPA online entitlement transfer system likewise is unlikely to be up and running until mid-February. However this season we are now trading with an exchange of contracts prior to submission on line, so sales are being tied up in advance (see below).

Improvements to standard trading operations

Paperless trading

This year we have introduced a near paperless system unless specifically needed otherwise. This we hope will increase efficiency and speed, simplifying the process both for vendors and purchasers.

Greater transparency

A further improvement we have introduced this year is that we have prepared a standard set of trading terms which both parties to a transaction receive, including details of the relationship we have with both our client and the purchaser in a single document.

Online transfers in England

This year it is expected the RPA online transfer system will be simplified in respect to usage years, now we are further from the 2015 “use it or lose it” year. The 2015 year had its own special usage rules in England and therefore does not count towards the bi-annual usage years that apply thereafter. Any entitlements in the system now that were used in 2015 (subject as always to retrospective corrections) should show online with a usage year of either 2017 or 2018 (if claimed on in 2016) both of which suggest the entitlements are available for transfer. A usage year of 2016 however should ring an alarm bell although, as always, what the RPA online system says in respect to the usage rule and number of entitlements cannot be relied on. It should as always be remembered that submitting a transfer application online is just what it says; it is an application that is not guaranteed to be successful. Whatever the computer says or does not say on the transferors’ or transferees’ online entitlement records, the validity of the transfer still remains subject to receipt of a communication from the RPA by email or the RPA Online messaging system confirming the transfer. There are, however, promises from the RPA that more detail will be given once the online system is fully operational in February. This may include details as to the history of transferred in and transferred out entitlements.

Online RPA information

The risks of relying on the RPA online information remain as last year, and whilst for the majority things should have improved, for a significant minority, things could even be worse. This is due to the backlog of queries and errors still remaining un-sorted from 2015 which impact now on 2016 online information. If you are one of those involved in this, this will make things that much more difficult, not only for transferring entitlements but also for making a claim in 2017. As before one will be ending up guessing as to what the RPA think, or should think, about your situation, and again it looks likely that some claimants will have to ignore the RPA online information and work out for themselves the number of entitlements they should have, and the eligible area on the ground they can claim on. Some problems of this type will be severe and will cause a considerable amount of extra work and risk. Anyone in this situation would be advised to try and mitigate this risk by making clear to the RPA that they are transferring entitlements based on the information available to them on specific dates, and if the RPA information is subsequently found to be incorrect, they will hold the RPA accountable accordingly. Alternatively, if someone is not relying on the RPA information for eligible areas and mapping, believing it to be erroneous, expert care and professional advice will be needed, not only as how to proceed but also how legally to protect their position in respect to the RPA subsequently then not agreeing with them.