2018 BPS AND ENTITLEMENT TRADING UPDATE – 15th MARCH 2018

15th March 2018

ENGLISH ENTITLEMENTS – TRADING UPDATE

March is traditionally the month where farmers/landowners and their agents start to turn their minds to their BPS claims and to seriously assess what entitlements are needed in order to fully maximise their payment, and trade is beginning to pick up. With the online BPS claim forms now live on the RPA online website, it is expected that this will build as we approach the 15th May deadline.

Non-SDA

Trading has been steady but fairly slow for Non-SDA, and despite now building up a long register of purchasers who will wish to buy this season, only a few have as yet turned their interest into firm offers, with many prospective buyers hoping that the price will drop even further.  The sales agreed in the early part of March were at £150-160 for VAT and non-VAT entitlements, but few were for large quantities. In the last week a few buyers have managed to secure some larger blocks at £130 plus VAT, however most sellers remain resistant to accepting such low offers with two months still to go before the deadline and still are looking for £140-£150 per hectare. With an estimated 2018 BPS payment of £228 per hectare, a purchase at £150 will result in an £80 return per hectare in the first year, and with the payment guaranteed in 2019, and the Government’s intention that it should continue for the life of this parliament and maybe beyond, entitlements bought now could possibly enable a subsidy (of some sort) to be claimed up to 2024.

However the market is driven by supply and demand and at present there is a good supply of Non-SDA entitlements, some of which will be lost to the National Reserve if they are not sold this year. It should be recognised, however, that if all the prospective buyers decided to buy all at once, there would not be enough supply to meet demand, and if this happens, this would put upwards pressure on the price.

We have a number of clients who would also be interested in leasing out, and are looking for offers at around 50% of the sale price, however as yet, no doubt due to the low sale price, there has been little interest in leasing in.

SDA

As usual the trade in SDA is much slower than Non-SDA, however the sales agreed have been achieving £200-220 per entitlement due to the shortage in supply. Currently we have one large block which is available at £210 plus VAT, together with some smaller blocks where the sellers are looking for £220 plus VAT. We also have about 30 ha available for lease at 50% of the sale price.

Moorland

There is strong demand for Moorland entitlements, with the usual short supply.  Sales have been agreed at between £55-65 per entitlement when they can be secured.

RPA ENGLISH ENTITLEMENTS – COMPUTER “GLITCHES” 2018

Every year the RPA computer throws up some new glitch that can affect the transferring of entitlements.  This year we have so far come across three different types, as follows:

1. Entitlements being removed from a farmer’s records in error when not claimed for only one year

We have already had two instances of this happening this year, where the entitlement history is correct on the online records, apart from the entitlements are removed by the computer in error when not claimed upon in 2017. As the rules make clear, farmers only have to claim on all their entitlements once every two years, and therefore someone who the computer shows did claim and was paid in full on all their entitlements in 2016 should have those entitlements available in 2018. When this was queried with our contacts in the RPA we were informed: “…unfortunately we have experienced a system anomaly causing surrenders to generate incorrectly in the first year of non-use, several claims have been affected by this scenario.”  When this has been brought to their attention, the RPA has been able to correct these errors, but farmers who did not claim last year who are considering selling this year would be wise to double check their entitlements are showing as available for 2018 now, in case they need to contact the RPA and get any errors corrected, so the entitlements can be transferred online by the deadline.

2. Entitlement records not being updated when 2016 payment was made, therefore they are not showing as available for 2018

We have a case where a claimant was paid in full in 2016 (and this has also been confirmed in writing by the RPA), however for some reason the RPA computer has not updated their records to show the entitlements were activated in 2016, and therefore all their entitlements still show a use by date of 2017 rather than the correct 2018.  This particular claimant is also still waiting for their 2017 BPS claim to be paid (again, no reason has been offered for the delay in processing by the RPA, they are simply “at the back of the queue”). We have been advised by the RPA that until the 2017 claim is processed and the payment is made, the computer cannot “refresh” their entitlement history to correctly show the use by date of 2018 it should be showing now, or the 2019 use by date that will be correct after the 2017 claim is processed. Where claimants have not yet been paid for 2017, although the RPA computer will not transfer the entitlements until they are, it should at least display the use by date of 2018 This enables the transfer application to be submitted, even if it does then go into “pending” subject to the processing of the 2017 claim. The RPA have advised they have no idea why this particular glitch has arisen, and they are unable to do anything other than reassure us that this will be resolved once the 2017 payment has been made, and to recommend that a paper RLE1 transfer form is submitted in the meantime. This of course is not ideal, as RLE1 forms will only be processed long after the deadline.

3. Transfers in “pending” not automatically pushing through

We had been advised by the RPA that entitlement transfers that were ”pending” would automatically push through once the “block” holding them up is removed, i.e. if a seller’s 2017 BPS claim is finally made, or if a buyer made their online “active farmer” declaration after the transfer application was submitted. However our experience has been that you have to contact the RPA and request that these transfers are manually “pushed through”.

REGIONAL ENTITLEMENT TRADING UPDATE

Trading remains strong in the regions as we move rapidly towards the trading deadlines: Scottish farmers and agents in particular should be pressing ahead with any trading as the deadline is the 2nd April; Welsh and Northern Irish farmers have until the 2nd May.

Scotland

The Scottish entitlement market is now in full swing, and with only 10 working days left until the close of the season we would encourage those looking to buy or sell entitlements to contact us now, particularly as the Scottish system is still paper-based. Region 1 entitlements have continued to trade at between 1.1-1.3 times face value, however higher prices have been achieved for very small lots. Demand for Region 2 has also picked up as we head through March, with deals being done at between 0.9 and 1.1 times face value. Region 3 remains quiet; however sales are predicted at around face value.

Wales

Prices achieved for Welsh entitlements have dropped slightly since the beginning of trading, with entitlements being sold for as low as 0.6 times face value in some cases. However, the bulk of the trade remains steady at between 0.9 and 1.2 times face value. With only 7 weeks left to go before the end of trading we would encourage Welsh vendors and purchasers to contact us at their earliest convenience.

Northern Ireland

Demand for BPS entitlements remains strong in Northern Ireland, with deals being done at multipliers of between 1.3 and 1.5 times face value. This is expected to rise as we move toward the 2nd May trading deadline to around 1.6 times face value.

UPDATE ON CHANGES TO UK ACTIVE FARMER TEST – ENGLAND, SCOTLAND, WALES & NORTHERN IRELAND

The 2017 Omnibus Regulations have now taken effect, resulting in significant changes to the ‘Active Farmer’ regulations, and the way Great British and Northern Irish farmers qualify for the Basic Payment Scheme.

The Active Farmer requirement of the Basic Payment Scheme is one of the features of the CAP that has caused the most confusion among UK farmers since the start of the current scheme in 2015 and, in the case of Northern Ireland in particular, has often added to the headaches that can be caused during the application season.

The requirement for a claimant to prove their status as an Active Farmer is prescribed by Regulation (EU) No. 1307/2013, which provides the criteria a farmer must meet in order to be eligible to receive direct payments under the CAP. The other criteria that must continue to be met is carrying out the ‘minimal requirements’, i.e. carrying out sufficient agricultural activity on the land being claimed on, and having the right to claim upon the land.

Part of the difficulty with the Active Farmer requirements is that each paying authority (RPA, RPW, DAERA, SGRPID) is given considerable freedom over how active farmer status is proven. This means that requirements in each of the four regions are different, although there is a general framework laid out in Regulation (EU) No. 1307/2013 that must be met. One of the key parts of this EU legislation is the ‘Negative List’.

The Negative List states those businesses which would normally exclude a claimant from the BPS, unless they can show that they meet the readmission criteria. Businesses on the Negative List include:

  • Waterworks
  • Real estate services
  • Permanent sports grounds
  • Airports
  • Railway services

Following the Omnibus Regulations, from 2018 the English, Scottish and Northern Irish payment agencies have all decided to relax the Active Farmer criteria, with the RPA removing the Active Farmer regulations entirely. Below is a brief summary of the latest Active Farmer regulations in each of the four regions:

England

  • The RPA have stated that the Active Farmer requirement has been completely removed from BPS 2018.
  • Those who were previously unable to claim under the BPS due to the Negative List may now submit a claim.
  • However, the Active Farmer check box still remains on the online application form, and must still be ticked – this is because the RPA are unable to update their computer system in time for the 2018 claim year.
  • Claimants should also be aware that although the Active Farmer test has been removed, they must still be actively farming the land they wish to claim on, and must still comply with all Greening and Cross compliance regulations to successfully claim the full BPS payment.

Scotland

  • The Negative List has been removed from BPS 2018, however farmers must still qualify as an Active Farmer.
  • This means that they must meet the legal definition of a ‘farmer’ and they must be carrying out the required minimum level of agricultural activity on the land they intend to claim upon, i.e:
    • Region 1: Growing and harvesting crops, rearing and breeding livestock or, where land is not being used for production, actively maintaining it in a state suitable for grazing or cultivation (i.e. clearing scrub, maintaining stock-proof fencing etc.)
    • Regions 2 & 3: Meeting the minimum stocking requirements (usually 0.05 livestock units per hectares on all hectares for at least 183 days each year), carrying out an annual Environmental Assessment across the holding, or a combination of the two.

Wales

Wales is the only one of the four regions that has not altered the Active Farmer regulations for 2018.

  • All farmers with a claim value of over €5,000 per year must pass the ‘Active Farmer’ test.
  • Claimants must meet also the definition of a farmer by carrying out a minimum level of agricultural activity on their land.
  • Those who operate businesses on the Negative List must meet at least one of the readmission criteria to pass the test:
    • The amount of Direct Payments received equals at least 5% of the receipts obtained from non-agricultural activities;
    • The claimant’s holding is more than 21 hectares;
    • The total receipts from agriculture represent at least 40% of the total business receipts in the most recent financial year for which evidence is available.

Northern Ireland

Proving Active Farmer status in Northern Ireland is possibly the most arduous of all the regions, however changes made this year should help to make this easier.

  • DAERA has removed the Negative List from the Active Farmer requirement for the 2018 scheme year; however claimants must still qualify as an Active Farmer.
  • A claimant’s status as an Active Farmer is proved by providing sufficient evidence to DAERA to demonstrate all of the following:
    • The claimant holds the decision making power in the farming business;
    • The claimant enjoys the financial benefits of the business;
    • The claimant bears the financial risks of the agricultural activity.
  • Evidence required by DAERA includes invoices and receipts for the sale of produce and purchase of agricultural inputs, copies of farm accounts prepared by an independent qualified accountant, and bank statements relating to the previously mentioned receipts and invoices.

UK YOUNG FARMER TOP-UP PAYMENT

The Young Farmer top-up payment is different in all the UK regions. This year England has changed the criteria for applying for the Young Farmer payment, details of this change and whether this change has been applied in the regions is given below:

England

In England the ‘Young Farmer’ payment is a top-up of 25% of the average value of all entitlements that are held by an applicant and is applied to the first 90 entitlements that they use.

  • To be eligible to claim the Young Farmer payment applicants must be at least 18 years old but not more than 40 in the year they first apply for the Young Farmer payment.
  • They must be in control of the farming business in that they have over a 50% sharing vote (two young farmers can combine their votes to prove control of a business if their votes combined equal over 50%) or be a sole trader.
  • The applicant must have made their first BPS application within five years of taking control of the business.

There has been a change to the Young Farmer Payment rule for 2018 in England in that the payment can now be claimed for a maximum of five years from the first year a successful Basic Payment application is made, unlike in previous years in which the payment could only be received for five years from the year that the applicant took control of the farming business.

Effectively this extends for some this extra payment, but this change does not allow any applications for backdated payments prior to 2018.

Examples from the 2018 RPA BPS handbook

A farmer’s date of birth is 6 April 1975. He makes his first BPS application in 2015. At the time of that application he is 40 years old. Providing he meets the other criteria, he will be classed as a ‘Young Farmer’ up to and including 2020.

A young farmer set up or took control of their business in 2011 and made their first BPS and Young Farmer payment applications in 2015. They were previously only able to claim the Young Farmer payment in 2015 and 2016 and were not eligible to claim in 2017 as this was more than 5 years from the year they took control of their business. Under the new rules that apply from 2018, this farmer is now eligible to claim the Young Farmer payment again in 2018 and 2019 i.e. 5 years from their first Young Farmer payment application in 2015. They would still not receive the payment for 2017. See here for more detailed information.

Wales

In Wales the Young Farmer applicant can claim the 25% top up on the first 25 hectares on the holding for 5 years from their first Young Farmer claim rather than the year they became head of the holding.

See here for more information.

Scotland

A Young Farmer in Scotland can still only receive a Young Farmer top-up payment for 5 years from the date the business was first established. See here for more information.

Northern Ireland

In Northern Ireland also, a Young Farmer application can only be made for 5 years from the date a business was set up or the Young Farmer became head of the holding. See here for more information.

2018 BASIC PAYMENT SCHEME RULE CHANGES IN ENGLAND

The 2018 Basic Payment Scheme (BPS) guidance booklet for England was released on the 13th March. The following changes from the 2017 rules now apply:

  • It is no longer possible to cultivate EFA fallow land unless it is under a specific requirement for a rural development grant scheme.
  • Fallow land that is declared as fallow for five consecutive years will automatically convert to permanent grassland.
  • The multiplier for EFA nitrogen fixing crops has been increased from 0.7 to 1.
  • From 2018 a claimant who has more than 75% eligible agricultural land in permanent or temporary grassland, or more than 75% of the arable land in fallow or temporary grassland, will now be exempt from a greening requirement regardless of their remaining area of arable land.
  • Spelt Wheat now has its own land use code.
  • A ban is imposed on all plant protection products on Ecological Focus Areas (EFA).
  • The EFA option for hedges has been extended to include trees in a line.
  • EFA buffer strip options have been extended in definition to include field margins.
  • EFA catchment crops must be maintained for a minimum of eight weeks starting on the 20th August 2018 and retained until at least the 14th October 2018.
  • The definition of EFA nitrogen fixing crops has now been extended.
  • There are changes to Crop Diversification & Ecological Focus Areas (EFA) penalty calculations.
  • These are now additional administrative Greening Administrative Penalties introduced for the first time in 2017.

See here for more detailed information on these changes.