OUR 2014 ENTITLEMENT & MILK QUOTA AGENCY TEAM
 Ashley Taylor BSc.(Hons), MRICS FAAV ACIArb. |
 James Clack BSc.(Hons) |
 Charles Gregory BSc.(Hons) |
 Julia Clark BA(Hons) |
Our 2014 entitlements and naked acres letting/hosting team is Ashley Taylor, Charles Gregory and James Clack. Ashley once again is handling English Non-SDA entitlements and naked acre letting/hosting, Charles Gregory is dealing with English SDA, SDA Moorland & Welsh, and James Clack is handling Scottish and Northern Irish. Julia Clark continues with her 13th year of handling milk quota.
CAP UPDATE
Despite publicity surrounding the ‘agreement’ of the CAP on the 26th June, effectively a good number of the finer points, that actually impact dramatically on one’s business planning ability, have either been devolved to Member State level decisions (for example rolling-on or reallocating entitlements) or shunted into the negotiations for the EU Multiannual Financial Framework (MFF – the overall EU budget), notably the transfer of funds between Direct Payments (1st Pillar) and Rural Development (2nd Pillar), the allocation of national envelopes for Direct Payments and Rural Development, and rates of co-financing, and the question of capping & degressivity. However we are finally seeing some decisions following last week’s informal agreement between the EU Parliament, the Council and the Commission, which were endorsed by the EU Agriculture & Rural Development Committee on the 30th September. Of course, as always, the devil is in the detail, and one should always be cautious when planning for the future as changes to the CAP could occur, one way or another, up until the final proposal is ratified in Europe and each Member State has made the decisions that have been devolved to their level.
The confusing issue is when these different rules will be implemented, as some of the new BPS rules have been deferred from the main CAP introduction in 2014, to enable Member States’ payment organisations time to facilitate the transition. These are the ‘transitional rules’, some of which are set out below together with some details of the expected 2015 rules.
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Policy
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2013
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2014
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2015
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Direct Payments
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SPS payments as normal with ≤ 5% FD reduction
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Transitional rules extend the SPS to facilitate the implementation of BPS
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BPS fully introduced
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Modulation
(‘flexibility’ – funds reappropriation from Pillar 1 to Pillar 2)
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Compulsory 10%
Voluntary 9%
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Introduction of the new MFF means that compulsory modulation will be taken off at the MFF budget level, rather than being applied to direct payments from 2014. 15% voluntary modulation is expected
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15% flexibility is expected in England
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Reverse Modulation
(‘flexibility’ – funds reappropriation from Pillar 2 to Pillar 1)
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None
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None
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15% is proposed as the maximum, with MEPs wanting to limit this to 10%. In England it is expected to be 0%
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Co-financing of funds transfers from Pillar 1 to Pillar 2
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Match-funded by national governments
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Match-funded by national governments
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Under discussion
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Degressivity
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None
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None
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5% (at least) reduction on direct/single area payments over €150,000 (£125,407.50)
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Further Capping
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None
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None
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Member States still to decide if they will implement an upper limit on direct payments
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Young Farmer Top-up
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None
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None
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Farmers who are the “first time head of a business” & under 40 years old can receive an additional 25% top-up payment on their first 54 ha
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Greening
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n/a
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Implementation deferred until 2015
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A compulsory payment per hectare for respecting certain agricultural practices. This will equate to 30% of the monies available to Member States for Direct Payments (the National Envelope). Failure to comply could result in penalties of up to 125% of the Greening Payment.
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Greening Equivalency
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n/a
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n/a
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Implemented to avoid penalising farmers already undertaking environmental farming practices.
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The information contained within this article is subject to change through the negotiation of the 2014 transitional rules for and reform of the Common Agricultural Policy and Multiannual Financial Framework of the European Union.
Monday the 30th September’s vote still has to be ratified by the EU Parliament as a whole in a plenary vote at either the October or November session.
GREENING EQUIVALENCY & ‘NELMS’
Greening equivalency will be an interesting policy to keep an eye on as proposals are tabled for what any New Environmental Land Management Scheme (NELMS) will look like, especially for those looking to enter or take up the NELMS in 2015. NELMS’s are the latest proposals replacing ELS, HLS, UELS, forestry and other Rural Development Programme (RDP) schemes after 2014. The new CAP is likely to incorporate a list of ‘equivalent measures’ (NELMS ‘options’) that can replace the greening requirements imposed by the direct payment system. However to avoid ‘double funding’, RDP payments will take account of the greening element that a particular RDP or NELMS ‘option’ provides. Presuming that the NELMS will operate through a similar mechanism to Environmental Stewardship, it seems that this could mean a reduced payment for some of the more basic NELMS ‘options’, because of the equivalency provision. This could both encourage and discourage farmers to sign up to the NELMS when it is introduced, in that the more basic, and most likely popular, ‘options’ could attract a lower payment in order to avoid the ‘double funding’ problem (equivalency). Depending on the holding therefore, it may be advantageous for one to consider more restrictive ‘options’ in order to benefit from higher NELMS payments that are not reduced through equivalency. However one could then end up undertaking the compulsory greening measures as well. Therefore it will likely come down to the suitability of individual holdings as to whether greening only, incorporating equivalent NELMS ‘options’, or greening plus more involved NELMS ‘options’, would be more economical when considering the work necessary for compliance ‘on the ground’.
SPS & ENTITLEMENT TRADING UPDATE
As set out in our previous newsletter of the 30th September, the exchange rate has now been set at €1 = £0.83605, which together with the implementation of the Financial Discipline (now confirmed on the 10th October as a 4% reduction on payments above €2,000) for the first time this year on top of modulation (19%), means we will likely see a comparable, if not slightly improved, SPS payment for 2013 of approximately £210.58. This equates to an increase of £1.19 per hectare on the year before, subject of course to confirmation of the actual payment rate, which is expected to be only a minimal change.
English Non-SDA
English Non-SDA entitlements are currently trading around £210 per unit and with demand outstripping supply, further price rises could be on the horizon. Prices at this level, with the uncertainty over the roll-on or reallocation of entitlements, suggest that market opinion is expecting a roll-on, which seems the most sensible route for England both from a logistical and economic perspective.
However when looking back to the early days of the Single Payment Scheme one notes that 2007 saw multipliers of up to 4.5 times the value (Non-SDA). This suggests that prices could rise dramatically in line with the opinion that entitlements will roll-on and already some very high entitlement prices are being bandied around. These levels are of course presuming that a roll-on of entitlements will be forthcoming and one should take care as it is all too easy to presume that England will choose the most sensible route (a roll-on). Despite this the ‘crunch’ is likely to come down to the compatibility of the RPA’s existing entitlements database and the new CAP IT system, which means that unfortunately the decision is likely to be taken on the basis of a technical issue, rather than a practical one. There is also the issue of on-going entitlement correction and one could see the benefit of a ‘clean slate’ (with a re-allocation) in respect to entitlements that are either undergoing correction or have the potential to do so in the future. Also we may not know about a roll-on/reallocation until well after the 2nd April 2014 transfer deadline.
English SDA & Moorland
English SDA entitlements are as usual expected to achieve prices slightly below those of Non-SDA, and demand is currently strong although there has been no trade as yet. For the second year running demand for SDA Moorland is very high; last season saw prices for Moorland entitlements peak at £55.22 per unit, which is sky high considering we now know that the 2013 Scheme Year payment after modulation (at 19%) will only be £30.79/ha (subject to the Financial Discipline). Time will tell if this level will repeat itself, however considering the continuing high demand and market opinion regarding the roll-on, one could quite easily see this happening.
Welsh
Historically Welsh entitlement trade has been fairly quiet until the new calendar year and 2014 looks set to be no different, with both supply and demand relatively low compared to the English markets. Despite this some early trade provides a ‘snap-shot’ as to likely prices for the 2014 Scheme Year showing mid-value entitlements trading at multiples of 1.7, and higher value over 2 times the value, suggesting that there is confidence in the market.
We wait for confirmation on the timeframe for the transition from historic to flat rate payments, although there are strong indications that a five year transition period will apply. This would impose a 20% reduction in the historic element annually for 5 years in order to exceed the EU requirement to reach a payment based on a 60% flat rate by 2019. The Welsh Assembly has chosen to increase the annual reduction in order to comply with this target early. Wales also looks set to be introducing a two tiered system of payment from 2015, where we anticipate an upland and a lowland classification will be created, similar to the system used in England. There is speculation that 2014 will be set as a reference year for farmers to have claimed in order to be eligible to receive new entitlements in 2015. Although there will be a mechanism to allow new entrants to obtain entitlements in the forthcoming allocation in 2015.
Scottish
The Scottish entitlement market has at this stage in the 2014 season seen little trade thus far, however this is usually the case until mid-January when things really start to ‘hot up’. Vendors and purchasers are however encouraged to register sooner rather than later in order to increase their chances of securing transfers at competitive prices. The 2012/13 Scottish entitlement market was more stable than the English market and it is expected that this trend will continue this season.
Now that the exchange rate has been set for the 2013 Scheme Year one can more accurately estimate this year’s Scottish payment, subject to the financial discipline. As with the other entitlement markets it is predicted that although Sterling is 4.55% weaker against the Euro than in September 2012 (meaning a higher Single Payment value), this will be counteracted by the financial discipline meaning that the reduction in payments will likely be less than the anticipated 5% reduction, predicted earlier in the year following the 9% CAP budget cut.
With regard to the transition from historic payments to the new flat rate system hopefully after 2014, it is still unconfirmed as to the all-important ‘specific date’, which will determine if one is eligible to receive the new entitlement allocation under the Basic Payment Scheme. Rumours suggest that it could be either 2013 or 2014. Equally as important is the phasing out period in which the historic element is reduced and the flat rate is increased, however this is yet to be confirmed.
Northern Irish
The Northern Irish market tends to gently simmer until Christmas time with vendors and purchasers only really starting to show interest in the New Year. Northern Ireland will see a similar transition into the Basic Payment Scheme as Wales and Scotland, aiming to phase out historic payments but with a possible ‘top-up’ mechanism, softening the blow for many farmers. Also on the Department for Agriculture & Rural Development (DARD) agenda is a mechanism for reducing payments to ‘non-farmers’ through restrictions on the historic element, however details of this are yet to be confirmed.
ENTITLEMENTS IN THE 2014 TRANSITION YEAR
The next Scheme Year (2014) will see predominantly the same direct payment mechanism we currently have. Effectively the current scheme has been extended through the ‘transitional rules’ in order to facilitate the change from the old to the new scheme from a logistical point of view.
The confusion comes however when one talks about the Multiannual Financial Framework or MFF (the overall EU budget). The current provisions for the EU budget come to an end after 2013, therefore although the transitional rules for direct payments effectively extend the existing system, it will be governed by the budget for the years 2014 to 2020. There are therefore a number of matters to be decided during the MFF negotiations that will impact on the CAP from 2014 onwards.
ENTITLEMENTS IN THE BASIC PAYMENT SCHEME (2015) – FUTURE PLANNING
The latest working documents from the EU Council set out some interesting issues for farmers in England who, if England decides to roll-on existing entitlements, could lose excess entitlements that are not activated in the first claim in 2015 under the new scheme.
England must decide by the 1st August 2014 whether it wants to roll-on existing entitlements or re-allocate new BPS entitlements based on the total eligible area claimed in the first year of the new scheme. Therefore English entitlements Vendors and Purchasers will have to decide whether to sell/buy entitlements in the 2014 trading period without any definitive confirmation that the SPS entitlements will “roll on” into the BPS from 2015 onwards. Of course this information could be forthcoming prior to 2ndApril deadline, however there is no guarantee of this and from past experience it is likely to be later rather than sooner.
This could mean that in order to keep excess unused entitlements and prevent them from expiring in 2015 one will either have to rent in Naked Acres or set up an Entitlement Hosting arrangement. A further option may be to not activate any rolled on BPS entitlements in the first year, which oddly could, as the proposals currently stand, prevent the withdrawal of your excess entitlements surplus to your eligible area!! You may be able to sell the excess entitlements to an eligible purchaser, however, if you wish.
The Naked Acre Letting route could be problematic in that we will not know until the CAP reform documents are fully adopted as to any preventative mechanisms that may be introduced into the package or the Article 30 artificiality provisions, although these should be available before the 2015 transfer deadline (presumably the 2nd April 2015). Hosting therefore may be a more attractive option because a roll-on (if confirmed) will mean farmers with bare land (naked acres) would need to purchase or Host entitlements, as they would not be allocated additional entitlements as in other Member States not on the flat rate system. Therefore those not able to purchase entitlements in 2015 will have spare capacity, which farmers who do not want to relinquish their surplus entitlements could utilise in the 2015 Scheme Year through a Hosting agreement.
MILK QUOTA TRADING UPDATE
It may seem surprising to some that there continues to be trade in milk quota, with its phasing out looming at the end of March 2015. However in the interim milk purchasers still require their dairy farmers to hold quota to enable them to collect their milk, and there are still new start-ups, and some who are producing well over their current quota levels. There also continues to be interest in crystallising the loss in the value of quota for tax reasons, which involves selling quota and then buying back.
We have also had a few purchasers who are simply sceptical of the current EU confidence that the dairy market will “sort itself out” without any intervention following 2015, and believe the EU may have no option but to re-introduce some kind of production controls in the future, particularly seeing how some Member states are already gearing up to massively increase production following the demise of milk quota (Ireland’s first minister has recently revealed he is committed to increasing production by 50% after 2015). There is speculation that, if a dramatic imbalance does appear in the years after milk quota, the EU may have no option but to reintroduce some form of production control, and that they may, as a start point, reactivate quota held when it was phased out. If this does prove to be the case, then buying cheap quota now to ensure you hold enough to cover future production will prove to have been a wise investment.
Milk quota is currently trading at 0.2ppl for a 4% butterfat.
RPA DISPUTE RESOLUTION – SUCCESS WITH PROFESSIONAL FEES
Many farmers will at one time or another have been involved with either entitlement correction or other contentious issues involving some form of maladministration by the RPA. The extent of these issues will vary, sometimes involving only the correction of a few entitlements or, on the other hand, retrospective reclaims of past SPS payments and the withdrawal of entitlements that have been successfully claimed on for a number of years, which can involve hefty payments back to the RPA, or to compensate a purchaser of those entitlements.
However when one is the subject of such claims for reasons suggested by the RPA that are unfounded or contradictory with their previous correspondence, the complaints procedure that should be designed to deal with these maladministration situations leaves a lot to be desired. It is a multi-stage procedure culminating in a review by an independent agricultural appeals panel. However from past experience even this independent review is limited in its application, in that the RPA will not always agree and comply with its own findings and recommendations, somewhat unbelievable for a final stage appeal mechanism.
A further barrier to redress when dealing with the RPA are the costs involved in taking a complaint through the full complaints procedure and the constant ill-informed responses one receives until one reaches the upper echelons of RPA management, and consultants with a legal knowledge of how a claim for maladministration works. The prospect of escalating the professional fees that would be incurred in proceeding with such a claim has in the past deterred many farmers from pursuing potential maladministration claims.
However all is not lost. We have now succeeded in obtaining compensation from the RPA in respect to the professional fees incurred in dealing with entitlement correction and other issues where maladministration has been found. Finding a route through the RPA complaints procedure has been long and arduous, in some cases taking a number of years. However now that we have succeeded (we understand for the first time ever!) in finding a successful route through the bureaucracy to recover payments for professional fees, the prospect of bearing the cost of high professional fees is somewhat alleviated if one has a good case for claiming maladministration.
Maladministration can arise from any number of errors, most notably being situations where the RPA have provided written confirmation that some entitlements were ‘live’ and available for transfer, but subsequently, following a number of years of successful entitlement activations, have withdrawn the entitlements from the claimant on grounds that they should previously have expired. However maladministration can take a number of other forms including delays in responding (one question took the RPA over a year to answer!), incorrect action or failure to take any, inadequate record keeping or consultation, providing misleading or inaccurate statements and broken promises, to name but a few.
If you have, or think you may have, such a situation that has either never been followed up, or you feel like you are banging your head against a brick wall with numerous different case workers, please contact me or Ashley Taylor, who has started taking the exams with the Chartered Institute of Arbitrators, for an informal discussion about your case.
NEW WEBSITE, FACT SHEETS AND FARM FACTS 2014
Watch out for our new Fact Sheets on TB Herd Movement Control in England and Cattle Movement in England in the next few weeks, Farm Facts 2014 at Christmas, and our new website.