The CAP Strategic Plan 2023-2027 will bring about significant changes to the manner in which entitlement values are determined and traded from 2023 onwards.
As discussed in detail on the previous pages, the introduction of the eco scheme and Complementary Redistributive Income Support for Sustainability (CRISS) measures, along with a deduction of funds for the new Complementary Income Support for Young Farmers (CIS-YF), will see 38% deducted off the value of each entitlement in 2023, compared to the value in 2022.
The remaining 62% value of each entitlement will be known as the Basic Income Support for Sustainability (BISS). Essentially, this replaces the Basic Payment Scheme and this component of an entitlement, minus a 3% deduction for the national reserve, will then be subject to convergence at 85%.
These elements of the new CAP will have a major effect on determining the value of entitlements transferred by way of lease or sale.
This is reflected in Tables 1 to 6 which show the effect of CAP reform on the value of six different entitlement unit values. It should be remembered that these are preliminary figures which are about 95% accurate with the Department planning to update their CAP calculator.
A significant percentage of farmers have entitlements which had a unit value in 2022 of between €200 and €360.
Farmers above these entitlement values will see very significant cuts to the value of such entitlements, while low-value entitlements will see the value of each entitlement unit gradually increase over the next four years. It should be noted that convergence works on entitlements from 2023 to 2026 with the BISS value in 2026 rolled over to 2027.
In the last CAP (2015 to 2022), the greening component of each entitlement was part of the overall entitlement value and therefore when entitlements were traded the value of greening was taken into account in determining the sale/lease value. There are big changes in this regard from 2023 onwards, with eco schemes paid independent of entitlement values, ie a farmer does not need entitlements to receive payment on each eligible hectare.
The CRISS payment is also paid almost entirely independent of entitlements.
To explain this statement, farmers need to possess one entitlement to activate their CRISS payment but the payment on the remaining 29ha is not linked in any way to possessing entitlements for this area.
These changes have greatly reduced the value of entitlements for trading and this is without taking into account convergence. For example, if we take an entitlement worth €300 in 2022, the typical value of this entitlement in the case of the sale of the entitlement was a multiplication of €300.
Leased entitlements
In the case of leased entitlements, a common arrangement in recent years was the owner of the entitlement would receive in the region of 60% of the value of the entitlement from the farm leasing the entitlement which would retain the remaining value.
In 2023, the value of the entitlement for trading would be €177, as detailed in Table 5 and this would vary slightly in subsequent years due to convergence.
Reports indicate the erosion in the value of entitlements may encourage more farmers to look at selling entitlements with this decision encouraged under CAP by the introduction of an amnesty on clawback as will be explained opposite.
In the current CAP, the sale of entitlements without lands was subject to clawback at 20%.
This essentially meant that for every 10 entitlements traded, the value of two entitlements would be relinquished to the national reserve.
An amnesty on the current clawback of 20% on entitlements sold without land will be introduced for 2023 and 2024. This means that entitlements can be sold with the full value changing hands.
As it stands, the 20% clawback rule on the sale of entitlements without land will return in 2025 and be present again in 2026 and 2027.
The Department of Agriculture’s objective here is to incentivise the sale of entitlements and try to get more entitlements into the hands of farmers who are actively farming the lands.
It was never envisaged that the trading of entitlements would turn into such a big business growing from 4,000 farmers trading entitlements in 2015 to over 7,000 farmers in 2017 and over 14,500 in 2020.
The CAP Strategic Plan 2023-2027 includes significant changes under land eligibility classification.
Features such as scrub, trees, woodland, habitat and rock which are deemed to be delivering a biodiversity benefit may now be deemed eligible for the purpose of receiving your BISS, eco scheme, etc, payments.
These beneficial features can now comprise up to 50% of the reference area of that parcel (minus deductions for any artificial features such as roads, buildings for example and waterbodies) and be deemed eligible for payment.
This may see more farmers who possess a low number of surplus entitlements now be in a position to draw down these entitlements removing the need for these entitlements to be traded.
Active farmer definition: Basic Payment Scheme (BPS) applicants could receive their BPS payment without demonstrating any farming activity. This is set to change and from 2023 livestock farmers will have to maintain a minimum stocking rate of 0.1LU/ha, while farmers with crops may be asked to present proof of activity and those without livestock or crops will be asked to prove they are maintaining lands in a manner, which is providing an environmental benefit.
There are 10,500 farmers in this category currently receiving payments of €32m in 2021, or an average of €3,700 each.
Some of these farmers may decide to now lease or sell these entitlements with or without lands.
The changes introduced under the CAP Strategic Plan may have significant consequences for existing leases. There are two main concerns raised in this regard.
Some leases have been drawn up stating an amount of money to be paid to the farmer leasing the land/entitlements rather than the value of the entitlements.
In some situations, the value of entitlements will change significantly due to convergence or the more common situation is that farmers leasing in the entitlements will be tied into paying the eco scheme and CRISS component even though these payments are no longer linked to the entitlement value.
A lease is a contractual agreement and many farmers now find themselves caught in a tricky position where leases have been drawn up in this manner. The second more common situation is where the lease states that the value of the entitlement is to be returned to the lessor either in full or a percentage of it.
Value
This value has now been significantly reduced with the removal of the eco scheme and CRISS payments and this also has the potential to lead to significant friction between the parties involved.
For this reason, the advice for drawing up any lease is to be crystal clear on the amounts of money changing hands and to steer well away from just including an overall figure.
Any longer-term leases beyond 2027 should include a mandate on what arrangements will be put in place to account for future changes to the value of entitlements under the next CAP reform.
SHARING OPTIONS