Reports indicate there is likely to be a significant increase in the number of entitlements traded by way of sale in 2023. The increased interest in sales over leasing stems from big changes to the value of entitlements introduced under the CAP Strategic Plan (CSP) 2023-2027.

The reduction of an entitlement’s net value, or what will be paid under the Basic Income Support for Sustainability (BISS), will drop by 40-45% for the majority of entitlements in 2023.

Farmers activating payment on their own entitlements will have a chance to recoup these funds through the Eco-Scheme and Complementary Redistributive Income Support for Sustainability (CRISS) payments.

New schemes

The reduction in entitlement values has been well-documented beforehand, but to briefly recap: the value of every entitlement will be reduced by 25% with these funds used to fund the Eco-Scheme. A further 10% will be deducted to fund the CRISS frontloading, while 3% of the overall value is being ring-fenced to support the Complementary Income Support for Young Farmers (CIS-YF).

The deductions amount to around 38% when combined. In the last CAP, the payment of entitlements under the BPS was divided into a greening or environmental payment, which accounted for 44% of each entitlement’s value, and the remaining net value. The majority of farmers received the greening payment, and a huge difference compared to the new CSP is the fact that the greening payment was linked to entitlements, meaning that this value also changed hands in the leasing and sale of entitlements.

In this CAP, the Eco-Scheme, CRISS and CIS-YF are all paid almost independently of entitlements. One entitlement is required to activate a CRISS payment, but outside of this there is no link between payments under the Eco-Scheme, CRISS and CIS-YF, and possession of entitlements. These schemes will be paid on so called ‘naked’ hectares.

New values

This also means that the value of payments under the Eco-Scheme and CRISS do not transfer with entitlements traded. Therefore, the only value changing hands is the BISS component, which is also subject to convergence at a rate of 85%. As mentioned already, this will see the value of entitlements fall on average by 40-45% in 2023.

The BISS component of high value entitlements will continue to be eroded through convergence in subsequent years, with the value reducing by up to 55-60% over the next four years (as detailed in Table 1). Low value entitlements will be boosted by convergence and by 2026, all entitlements will fall within a unit value range of €125-€285 with the new national average figure around the €155 mark.

Reduced attractiveness

This reduced value of entitlements is reported to be reducing the attractiveness of leasing. Farmers leasing in the entitlements are notedly less inclined to return as high a percentage of the BISS value, which is understandable given the payment figures are much lower.

If we take an entitlement worth €300, for example, which was leased under the BPS. The typical agreement of 55-60% of the value of the entitlement (including greening) was returned to the owner of the entitlement. Leaving aside any agent-handling fees, at 60% the owner of the entitlement received €180, while the farmer leasing in the entitlement only received €120.

Under the new CAP, the BISS value now falls to €176.22. If the percentages were to remain the same, the farmer leasing out the entitlement would receive €105.73 – with the farmer leasing in the entitlement receiving just over €70. Agents explain that farmers leasing in have resisted foregoing such a percentage and tying up funds, given they stand to receive a much lower payment.

As such, the market has rebalanced and agents report that the typical percentage of share entitlements above the national average is in the region of 50-53% being returned to the owner. For lower value entitlements with a value in 2023 in the region of €110 to €130, the percentage share the owner receives is reported to be ranging from 30-40%, while scarce supplies of high value entitlements are rising in isolated cases above the 55% mark, with some deals also involving land leasing.

Increased sales

The lower returns achieved by entitlement owners and the fact that there is a two-year amnesty on the 20% clawback rule for entitlements sold without land is fuelling significant interest from entitlement owners in selling entitlements. There is also an associated increase in interest for purchasing entitlements, with the new system achieving the Department of Agriculture’s aim of strengthening the active farmer’s hand in negotiations and encouraging higher sales.

This makes financial sense for many. If we take the same example as above with a BISS value of €176.22, the average sale value reported for entitlements appears to be in the region of 2.2-2.5 times their value for entitlements above the national average figure. There is contrasting reports for low value entitlements, ranging anywhere from 2 to 2.8 times their value.

Taking a multiplier of 2.2 and 2.5 times their value gives a total sale value of €352-€440 per entitlement. The value obtained over the next five years from leasing at a rate of 45-50% return is €396-€440. Some entitlement owners are opting to move entitlements now when their sale value is at its maximum level, being cognisant of the fact that there is an uncertain future beyond 2027 for entitlements and that clawback is being reintroduced in 2025.

Country round-up

John McGee, HMG Agri Entitlements in Meath says that entitlements trading season is up and running after an understandably slow start. He says the company has been specialising in entitlements trading since day one and that they have built up a strong relationship with many customers who also rely on their service to get up to speed on the changes.

He says that in general there is a greater understanding of the ‘big changes’ introduced under the CSP 2023-2027, but that there is also still a learning element for many clients. The early general trend reported is greater interest in the sale of entitlements, with typical sale values averaging from 2.2-2.5 times their value. John reports the percentage share returned to the owner in leases is starting at 35-40% for the lowest value entitlements of around €110, rising to 50% for entitlements rising above the national average.

David Quinn, Quinn Property, Wicklow reports that entitlements being traded in the Wexford, Carlow and south Wicklow area are typically entitlements above the national average figure. He says there is more interest in early season trading from farmers looking to purchase entitlements. The sales value of entitlements worth €170-€200 is typically 2.4-2.5 times their value, with 50% the average share where such entitlements are changing hands via a lease.

Joseph Naughton, Joseph Naughton Auctioneers, Galway reports a similar range in trading values as described above. This ranges from as low as 35% for entitlements worth €101 to upwards of 60% for the highest value entitlements from €330 to €360. Sale values range from 2.2 to 2.8 times their value and he reports a higher multiplication factor for entitlements appreciating in value.

He is advising farmers to utilise available advice when weighing up if leasing or selling is the best option. He says his company has recently completed some long-term leases of entitlements with lands and is advising that safeguards need to be built in to leases to account for further changes beyond 2027.

Roger McCarrick from REA McCarrick and Sons, Sligo is advising farmers purchasing entitlements to look closely at what entitlements are worth in the context that BISS now represents a smaller contribution of direct payments. He reports that a high percentage of entitlements trading hands are lower value entitlements ranging from €110-€140 and that these are trading at about 2 to 2.1 times their value and at 30-40% returned to the owner in lease agreements.