Major changes to the selling, leasing and use of entitlements are set to dramatically impact the market for entitlements in 2016.
The changes include:
A 50% clawback on all entitlements sold without land;A new option to lease entitlements without land;Much stricter “use it or lose it” rules where farmers must use 100% of the entitlements they hold a least once every two years.However, the rules for transfer of entitlements by gift or inheritance with or without land, as well as the sale of entitlements with land, have not changed. These transactions are not subject to clawback.
In 2015, new entitlements were established under convergence for all eligible farmers. The Department is aiming to send out an update on the definitive number and value of these entitlements after 1 April.
The changeover to the new CAP system meant that in 2015 there was no trading. However, agents involved in trading in previous years report an increase in the number of phone calls from farmers looking to either buy or sell entitlements for 2016.
The new 50% clawback will dramatically reduce farmers’ selling entitlements without land unless they are forced into it. Many will look at the option of leasing them out instead.
Take a farmer with 10 entitlements worth €250/ha (including greening). In the past, they would have received twice the value or €500/entitlement or €5,000 when going to sell them without land.
Under the new rules, the farmer would only be allowed to sell five entitlements, with the other five going to replenish the National Reserve. So the farmer would either have to charge more or simply take less if they sell.
For the first time, the farmer has the option of leasing the entitlements each year. They would not expect to get 100% of the value. Some put the figures that will be paid for lease entitlements at 25% to 60% of the face value.
The reason for this is down to the requirement for the active farmer to draw down the entitlements value and also to pay tax on the income as well. The demand and supply will have a major impact on the leasing price in 2016.
The trading of entitlements will be more complicated by the fact that most entitlements will change in value over the next four years under convergence. Entitlements above the national average will reduce, while low-value entitlements will lift in value as we go towards 2019.
Use it or lose it
Another major change to be aware of is the greatly tightened “use it or lose it” rule. A farmer must now use 100% of the entitlements they hold in one of every two years.
In the past, if a farmer has 100 entitlements and submitted 51ha each year, by rotation, they would never lose any entitlements. Now the same farmer must submit 100 eligible hectares every second year to avoid losing any entitlements to the National Reserve.
For example, if the farmer with 100 entitlements submitted 51ha in year one and 90ha in year two, they would lose 10 entitlements to the National Reserve. The forms for trading and transferring entitlements and terms and conditions are expected to be published on the Department of Agriculture website in the coming weeks.
Major changes to the selling, leasing and use of entitlements are set to dramatically impact the market for entitlements in 2016.
The changes include:
A 50% clawback on all entitlements sold without land;A new option to lease entitlements without land;Much stricter “use it or lose it” rules where farmers must use 100% of the entitlements they hold a least once every two years.However, the rules for transfer of entitlements by gift or inheritance with or without land, as well as the sale of entitlements with land, have not changed. These transactions are not subject to clawback.
In 2015, new entitlements were established under convergence for all eligible farmers. The Department is aiming to send out an update on the definitive number and value of these entitlements after 1 April.
The changeover to the new CAP system meant that in 2015 there was no trading. However, agents involved in trading in previous years report an increase in the number of phone calls from farmers looking to either buy or sell entitlements for 2016.
The new 50% clawback will dramatically reduce farmers’ selling entitlements without land unless they are forced into it. Many will look at the option of leasing them out instead.
Take a farmer with 10 entitlements worth €250/ha (including greening). In the past, they would have received twice the value or €500/entitlement or €5,000 when going to sell them without land.
Under the new rules, the farmer would only be allowed to sell five entitlements, with the other five going to replenish the National Reserve. So the farmer would either have to charge more or simply take less if they sell.
For the first time, the farmer has the option of leasing the entitlements each year. They would not expect to get 100% of the value. Some put the figures that will be paid for lease entitlements at 25% to 60% of the face value.
The reason for this is down to the requirement for the active farmer to draw down the entitlements value and also to pay tax on the income as well. The demand and supply will have a major impact on the leasing price in 2016.
The trading of entitlements will be more complicated by the fact that most entitlements will change in value over the next four years under convergence. Entitlements above the national average will reduce, while low-value entitlements will lift in value as we go towards 2019.
Use it or lose it
Another major change to be aware of is the greatly tightened “use it or lose it” rule. A farmer must now use 100% of the entitlements they hold in one of every two years.
In the past, if a farmer has 100 entitlements and submitted 51ha each year, by rotation, they would never lose any entitlements. Now the same farmer must submit 100 eligible hectares every second year to avoid losing any entitlements to the National Reserve.
For example, if the farmer with 100 entitlements submitted 51ha in year one and 90ha in year two, they would lose 10 entitlements to the National Reserve. The forms for trading and transferring entitlements and terms and conditions are expected to be published on the Department of Agriculture website in the coming weeks.
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