With CAP reform all but over, the fallout for individual farmers and for small groups of massively affected farmers will become ever more apparent.
All farmers with very high entitlements will see their payments cut by CRISS, convergence, and the effective reduction of eco schemes.
The more entitlements one has, the more the hit from CRISS, which will take 10% of your current payment away, but only return a maximum of €1,320. So farmers with a lot of land and higher-value entitlements will be the worst affected.
This is intentional. This CAP reform wanted to increase payments to farmers with smaller payments. It wanted to increase the value of lower-value entitlements so we have more convergence. It wanted to prioritise farmers with smaller holdings through a front-loading mechanism; say hello to CRISS.
And with a static budget, the only way it could do this was by cutting the payments of farmers with high-value entitlements, especially if they had lots of them.
Tillage farmers are feeling particularly targeted by this reform. They typically farm larger holdings.
Why do some tillage farmers have very high entitlement values? Again we have to look back. The only direct payment to the tillage sector during the reference years was Area Aid. That was worth about €313/ha. Therefore, specialist tillage farmers wouldn’t have had payments higher than that.
Added to that, root crops and vegetable crops received no payment. Farmers who grew sugar beet, potatoes or vegetables had their area aid diluted across those acres.
There was a top-up payment added when we lost our beet quotas in 2006, but that would not have elevated payments massively.
The big reason tillage farmers have very high payments is because they stacked their entitlements. When the Fischler reforms came in, there was an immediate problem, in that there were going to be more entitlements than land.
This was due to the existence of three reference years, 2000, 2001, and 2002. If Johnny Murphy farmed 20ha in 2000, but rented it out to Mary O’Brien in 2001 and to Tommy O’Shea in 2002, that 20ha generated three different sets of entitlements to three different farmers in the three years.
The second linked issue was that there were going to be a lot of very low-value entitlements. The third issue was with more entitlements than land out there, it would prove an artificial accelerator on land rental.
The solution found was what became known as stacking. You could consolidate your entitlements onto a smaller land base. You could reduce the number of entitlements by up to half, and increase the value of each entitlement. Many tillage farmers availed of this facility.
An example: say you had 100 entitlements worth €350. You could “stack” these down to 50 entitlements worth €700 each. Farmers could also buy high-value entitlements, for about three-and-a-half times their face value.
As we have just received payment for the 17th year under the basic payment system, anyone who invested in entitlements in the early years has been repaid handsomely.
A tillage farmer could stack and then rent or lease land with entitlements attached, or buy new additional entitlements.
Looking back, the whole system was pretty ridiculous. Could it ever have been any other way? Of course it could. The decision to allow entitlements to be traded was necessary, but the decision to allow them to be rented meant that landowners were able to hold on to entitlements and rent them out ad infinitum.
When tax incentives to encourage land mobility were introduced, and it became possible to lease land tax-free, a further fateful decision was taken. That saw landowners able to bundle the entitlements with the land and rent them out tax-free.
Contrast this with the treatment of the sale of entitlements. That was subject to income tax, with a clawback for good measure. This combination of stick and carrot makes it far more likely that landowners not farming will lease out their entitlements than sell them. And who can blame them.
As we move further from the reference years, the amount of people holding entitlements but not farming has naturally increased.
Someone aged 55 in 2000, when the reference years began, is now 76. If they don’t have a successor, there is a strong chance that they are leasing out some or all of their land or entitlements at this stage. If they aren’t they almost certainly will be by 2027, when they will be in their 80s.
The facility that allows a person to remain an active farmer by maintaining a minimum amount of land in their name means that people feel comfortable leasing their land and entitlements out repeatedly, with no threat to their continued ownership of the entitlements.
The big losers in all this have been people renting land and entitlements over the years, either as conacre or in longer-term leasing arrangements. The reality is that it is and always will be a seller’s market, as long as farming makes any sense economically. There simply will always be more hands in the air for land than there is land available.
And of course, the large-scale farmers who are currently most upset at the changes are the people whose buying power has meant they have been renting most of the land, particularly prime land, over the last 20 years.
Every look at the land rental or leasing market sees farmers with big payments able to outbid smaller and emerging farmers for land. And they have been the ones driving the price of land rental.
During the quota era, tillage farmers dominated the rental market in the tillage areas. Since 2015, dairy farmers are the dominant force.
If all our farmers continue to do the same things in 2023, and through to 2027, the net losses to their farms will all be the same.
If they all maintain the same land base, the same land rental prices, and the same arrangements around entitlement leasing, their expenditure won’t have changed. And the cumulative cuts from CRISS, eco schemes, convergence and the other cuts (young farmer, national reserve) will affect all the farms in a similar way.
The only variable is current entitlement value, the higher the current value the greater the hit.
Take two tillage farmers both farming 200ha. One is renting half this entitlement, the other owns all their entitlements. Both farmers’ entitlements are currently worth €400/ha, so their total payment this year was €80,000. If they continue with their existing arrangements, what will happen in 2023?
The same cuts will apply to both farmers. They will have a BISS of €240/ha, giving them a total BISS payment of €48,000. Convergence will apply to this payment, but we can’t calculate that yet, as the co-efficient is as yet unknown. In any event, convergence will affect both farmers in the same way.
Both will receive the maximum CRISS payment of €1,320 (€44 x 30). This gives them a total payment of €49,320.
They are both €30,000 down, but of course can apply for eco schemes.
Let’s assume that both qualify for the eco schemes. They would receive about €70/ha, another €14,000. The key here is that neither farmer needs entitlements to access the eco scheme payment.
That gives a grand total of €63,320 for both farmers. They are down a sizeable €16,680 each. It’s a lot of money.
The farmer who owns their own entitlements must take this on the chin, it’s income lost and that’s the end of it. They won’t like it, but the decisions have been made.
For the farmer who is renting entitlements, the picture on the face of it is even worse. If they are in a long-term lease, with the entitlements linked to the land, they will continue to rent the entitlements. If the contract proscribes a set price for the entitlements, they may be locked into paying the same price for entitlements that have a far lower value.
The BISS entitlement will be worth 40% less than the current BPS, the CRISS will not be available as they will have maxed out their CRISS payment on their own land, and they don’t need the entitlement to access the eco-scheme payment.
But the reality is that they are no worse off than the farmer who owns all their own entitlements if we compare 2023 to 2021. Both have the same €16,680 cut to their direct payment. The farmer renting entitlements has an added cost his counterpart doesn’t have to bear. But he is doing that at present, and has probably been doing it for years.
The farmer renting in entitlements was always worse off. The changes to the CAP have merely exposed the inequality in the entitlement system that has always been there. The perception that the farmer renting entitlements affects him more is not borne out by the figures.
In fact, the farmer renting may be in a position to get back some of that lost €16,380 by renegotiating the terms of their lease or conacre to take account of the devaluing of the entitlement as a result of these reforms. They may be relatively less affected than the landowner.
The Fischler reforms were supposed to give farmers the “freedom to farm”. That has evolved, through the retention of ownership of entitlements through repeated land leasing, or entitlement leasing without land. It is now the freedom not to farm but to benefit partially or completely from the ownership of payment entitlements. And the ones footing the bill are farmers trying to establish themselves or expand, who have been renting lands and entitlements for year after year, be they tillage farmers or dairy farmers.
We effectively mirrored the management of milk quotas in the management of payment entitlements. And the current CAP reform has done little or nothing to reform that.