Trading of entitlements in sale or lease agreements is slowly gaining momentum. A feature that is very apparent at this early stage of the season is that demand is greatly outstripping supply.

Galway-based auctioneer Joe Naughton specialises in trading of entitlements and reports four to five potential customers for each batch of leased entitlements, while demand for the sale of entitlements is rising to as high as 10-fold the number coming on offer.

“We are seeing far greater demand than supply for the sale of entitlements. Many customers are interested in buying entitlements, but there are just so few coming on offer, with owners preferring the option of leasing.” he says.

It is a similar case across the country. David Quinn from Quinn Property in Carnew mart says: “The amount of business done to date is small, so it is hard to judge the trade. One thing that’s for sure, though, is that demand is outstripping supply. The reality is that there is little to nothing available in terms of the sale of entitlements– and it doesn’t look too likely that this will change greatly.”

While clawback on the sale of entitlements without land has reduced from 50% in 2016 to 20% in 2017, owners of entitlements in general still prefer the option of leasing.

The clawback arrangement means that if someone wishes to trade 10 entitlements worth €350/ha, eight entitlements will transfer to the purchaser, with two entitlements transferred or lost to the national reserve.

Sellers also have to contend with capital gains tax, which, when both factors are combined, is by and large restricting sales to small volumes.

The average price reported for the sale of entitlements is two to 2.5 times the value of the entitlement for those valued between €200 and €450 with the higher multiplication for the higher-value entitlements.

Lower-value entitlements are selling for 1.8 to 1.9 times the value, while very high-value entitlements are, in some cases, rising to 2.8 times their value.

Leasing transfers

The transfer of entitlements is being completed on a percentage basis, where the owner is paid the highest percentage and the applicant drawing down the entitlements receives the remainder.

Again, the percentage share depends on the value of entitlements. The average share reported is 55% to 65% for entitlements valued between €100 and €300, rising to 75% for entitlements increasing to €600 to €700.

The general payment mechanism is upfront payment to the auctioneer, who will hold the sum until the payment has been received at the end of the year.

Other direct deals wait until payment comes through, but it is advisable to have the payment mechanism clearly agreed and recorded in writing.

Both men have a number of tips for those who wish to trade entitlements. There is quite a bit of paperwork involved, particularly when selling entitlements, so the advice is to move early and not wait until the last minute.

Entitlement values are also listed excluding greening. For 95% of farmers, greening will not be an issue, with the greatest concern with tillage farmers. To get the full value of the entitlement with greening, you need to multiply by 1.44 times its value.

Another important factor Joe Naughton highlights is for farmers to check if they stand to lose any unclaimed entitlements in 2017. This is part of the two-year “use it or lose it” rule, whereby entitlements that are not drawn down in two years revert to the National Reserve. This information will be detailed, if applicable, on the front of the 2017 Basic Payment Scheme application form.