Farmers with land leases expiring on 31 December 2013 continue to be left in limbo as to their options and actions for the new CAP reforms.

Over the last few months, I have had contact from a number of landowners and farmers who have leases running out on 31 December 2013.

While initially I gave them the likely options, I told each of them to wait until mid-December when Minister Coveney said he would make the necessary decisions to give them clarity.

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That date has come and gone. If there is just land involved, there is no major issue. However, the uncertainty is where the landowner established entitlements under the old system and is leasing them with land.

There are a number of important decisions that have to be made.

Reducing value of entitlements in 2014

Ireland’s pot of money for direct payments has been cut from €1.25bn to €1.216bn under the new reforms.

Farmers have already felt this in 2013 (paid out of 2014 budget) with a cut of 2.45% for payments over €2,000 to their Single Farm Payment (SFP) as well as the normal 10% cut on payments over €5,000 for modulation.

Under the old system of modulation, the first €5,000 for every farmer was exempt from any cuts. Modulation is gone. Entitlement values still have to be reduced to fit the new lower budget.

While the simplest way would be a liner cut to all entitlements values, a major change under the new system is that only farmers below a certain payment in 2013 will be exempt from cuts in 2014. This payment level can be up to €5,000.

The Minister has to make the decision. For example, if he decides it should be €4,000 then any farmer who was paid below €4,000 in 2013, the value of their entitlement will stay the same.

If a farmer was paid €4,000 or more, all his entitlements will be reduced by the percentage required. Under leasing this is important for farmers who agree to pay the value of entitlements with land leases.

Minister’s decision – at what level will farmers be exempt from to entitlements cuts in 2014? Range €0 up to €5,000.

Payment or entitlement values for 2015

Under the new system the value of entitlements the farmer has in 2014 or the amount of money they actually get paid will determine the pot of money they bring into 2015 to establish completely new entitlements. The Department is believed to be moving towards value of entitlements. The only major issue is for landowners that were not farming in 2013 who lease out all their land and entitlements. There is about €50 million worth of entitlements leased out each year. €26 million are from farmers who were still farming themselves in 2013. This can be covered by a private contract clause in the lease agreements. €24m worth of entitlements are where the owners were not farming at all in 2013.

As the current legislation is written, these entitlements would simply disappear. The land owner or the farmer leasing them will not get them. The Department is trying to work out a solution with the EU Commission which will be very important for these people.

Pot of money

The option is there for landowners to sell entitlements in 2014. For farmers, the pot of money to bring into the new system can be increased in 2014 by buying more entitlements. This is already seeing more demand for entitlements and initial indications are that they will be traded at the same value or higher than in 2013.

The option is there to bring in a clawback to dampen the trade. Alternatively, the Department could allow market forces to dictate, as for every buyer there has to be a seller and even last year only a small percentage of entitlements were traded.

Landowners who are leasing out all their land and entitlements have no option but to wait until the Minister makes these key decisions, hopefully early in the new year.