DOES THE NEW CAP FIT?

James Dinwiddy, Birketts LLP7 March 2014

Page 2

NEW SCHEME

• The new scheme will become effective on 1st January 2015.

• The new scheme payments will be made up of several different elements:-

• Basic Payment Scheme (BPS) – 70%;

• Greening Payment – 30%;

• Young Farmers Payment – up to 25% top-up.

Page 3

GREENING

• The Greening Payment is separate from the BPS.

• To qualify for the additional 30% you must satisfy the following:-

• Crop diversification.

• 10 – 30 ha of arable land must grow 2 crops. The main crop

must not be more than 75% of the land cropped.

• More than 30 ha of arable land must grow 3 crops. The main

crop must not be more than 75% of the land cropped and the

two main crops must not be more than 95% of the land

cropped.

Page 4

GREENING

• Ecological Focus Areas (EFA)

• More than 15ha arable land must have 5% EFA on or adjacent to arable

land.

• E.g., nitrogen fixing plants, ponds, hedges and buffer strips (not an

exhaustive list).

• Environmentally Sensitive Grasslands (ESG)

• Control on permanent grassland at a national level.

• EIA directives and undertakings under agri schemes remain in place.

• Exemptions

• E.g. organic farms, more than 75% pasture.

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YOUNG FARMERS

• Up to 25% additional payment for young farmers for each of first five years

of operation.

• To qualify:-

• A natural person; and

• Not more than 40 years old in year of payment application;

• Set up as a farmer or head of holding within previous five years; and

• Up to 90ha

Page 6

ACTIVE FARMER

• Must be an “active farmer” to claim the payments under BPS.

• Must carry out a minimum agricultural activity on the land.

• Payments will not be made to those on the “negative list”:-

• Railway services;

• Real Estate Services;

• Permanent Sport and Recreation Grounds;

• Airports;

• Water Works.

Page 7

ELIGIBLE AREAS

• Minimum area for a claim will be 5 ha.

• End of “pony paddock” claims

Page 8

MODULATION

There will be a movement of 12% from Pillar 1 to Pillar 2 in years 2015, 2016

and 2017. This may rise to 15% in 2018.

12%

Pillar 2Pillar 1

Page 9

NON-CAPPING MEASURE

“Degressivity” measure which basically means that although payments will

not be capped at a particular level there will be a 5% reduction on basic

payments over:

150,000

Page 10

CASE STUDY

• Joe and Ben Farmer are co-owners of 700 hectares. They farm 600

hectares in hand and let 97 hectares to a neighbour called Mrs Sprout (due

for renewal). The remaining 3 hectares are let to Ms Toggi.

• Joe and Ben are also buying another 300 hectares from a neighbour.

• Joe and Ben grow spring and winter wheat, barley, rape and beans.

• Joe and Ben have an old written partnership agreement but Ben is thinking

of retiring and Joe’s son Harry (also a farmer) may join the business.

• Harry has a small holding of 20 hectares but is keen to do more. He turned

33 on 11 February 2014 and may want to join his father in the partnership.

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CASE STUDY

Issues arising from the Case Study

• Transfer of entitlements when Joe and Ben are buying the additional land.

• As you were! – sale and purchase agreement should:

• allow for the transfer of the specified amount of entitlements;

• ensure cross compliance;

• cover submission of the RLE1 form;

• contain indemnities for any loss or reduction in the amount of

entitlements transferred;• Degressivity – reduction in basic payment

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CASE STUDY

Issues arising from the Case Study

• Mrs Sprout’s FBT

• include clause in renewal FBT allowing tenant to use the entitlements

whilst in occupation and to transfer them back to the landlord at the end

of the term.

Page 13

CASE STUDY

Issues arising from the Case Study

• Ms Toggi’s FBT

• Miss Toggi only rents 3 ha which is below the minimum eligible area

threshold of 5 ha.

• will therefore no longer be able to claim.

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CASE STUDY

Issues arising from the Case Study

• Crop diversification

• Joe and Ben’s in hand land – must grow three different crops. This could

be the wheat, rape and beans.

• They will need to have 5% of their land under EFA. Beans?

• Cropping licence v FBT

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CASE STUDY

Issues arising from the Case Study

• Crop diversification

• Harry’s Land – only needs to grow 2 crops because within the 10-30 ha

band.

Page 16

CASE STUDY

Issues arising from the Case Study

• Young Farmers Scheme and business restructuring

• Harry could qualify as a young farmer and obtain the top-up payment on

the land he owns.

• What if he became a partner in his father and uncle’s business? –

probably not qualify as not head of holding;

• any split of the business would be heavily scrutinised by the RPA.

Page 17

UNANSWERED QUESTIONS

• EFA – what are they?

• ESG – what land will be designated ?

• How will the existing agri-schemes be affected by greening?

• How will the national reserve scheme work?

• Will dual claims be allowed?

Page 18

THANK YOU

CAP Reform Workshop

Friday 7th March 2014

Richard Means

CAP Reform- Implications for your Farm

• Entitlements

• Greening Measures

• Environmental Stewardship Overlap

• Case Studies

• Degressivity

• 2014 SPS Applications

Entitlements

New Basic Payment Scheme introduced on 1st Jan 2015

Single Payment Entitlements ‘rolled over’ in England to Basic Payment Entitlements

Need to transfer Single Payment Entitlements by 19th Oct 2014

Surplus Single Payment Entitlements will be lost

Basic Payment Entitlements can transfer from 15th Jan 2015 to 2nd April 2015?

Entitlements – implications

Make sure in correct ownership

If taking on/giving up land in September – act quickly

Do sums now- sell surplus

2 year use rule

Greening Measures

Will make up 30% of the new annual payment

Non compliance penalty to rise to 37.5% by 2018

Ecological Focus Area (i)

Crop Diversification (ii)

Permanent Grassland (iii)

i) Ecological Focus Area (EFA)

5% of arable area (7% in 2018?)

Range of options

Nitrogen fixing crops – Input restrictions

Landscape Features

Exemptions: > 75% perm grassland or organic

Overlap with Environmental Stewardship

Ecological Focus Area

EXAMPLE EFA WEIGHTINGS

Landscape Features Unit Equivalent EFA area Comments

Hedges /m 4.5 Up to 10m

Wooded bank /m 12

Isolated tree /m 30 Crown >4m

Trees in line /m 6 Crown >4m

Field copses /m² 1.5 Overlapping crown <0.3ha

Field margin /m 9 >1m

Ponds /m² 1.5 <0.1 ha

Ditches /m 3 <6m

Fallow /m² 1

Buffer strips /m² 9 >1m

Agro-forestry /m² 1

Forest edges /m² 9 >1m

Short rotation coppice /m² 0.3

Catch crops/green cover /m² 0.3

Nitrogen fixing crops /m² 0.3

CAP Reform Workshop

Environmental Stewardship Overlap

Now closed existing schemes continue to end of term

No double funding allowed but;

Pre 2012 Agreements likely to allow options to be used for EFA

Post 2012 Agreements likely to suffer reduction where conflict with EFA

Some options can be used for ELS & EFA

New Environmental Land Management Scheme (NELMS) starts January

2016

ii) Crop Diversification

2 crops if over 10 hectares

3 crops if over 30 hectares

Main crop up to 75%; 2 main crops together not more than 95%

Third crop could be EFA but input restrictions

Exemptions: holding is organic; or

>75% of the holding is permanent grassland and arable area is <30h

>75% of the arable area is grassland/fallow and arable area is <30 ha

> 50% of the arable new and not declared previous year- primarily for specialist cropping

arrangements

iii) Permanent Grassland

Defined as grassland- established more than 5 years

Possibly grass margins?

2012/15 reference year – 5% tolerance

Administered at National level

Case Study 1 80 Hectares CFA Block Cropped

Pre reform rotation: year one 1st wheat, year two 2nd wheat, year three: OSR

Basic contractors charge: £250/ha, Farmers first charge £250/ha, 50% divisible surplus

Greening rotation: 50% first wheat, 45% OSR, 5% fallow + increased contractors charge £275/ha

Consider opting out of greening

Pre CAP Reform With Greening (10%

Increased Contractor

Charge)

Opting out of Greening

(30% Reduction in SP)

Average Arable Output £100,801 £93,960 £100,801

Gross Margin £55,867 £51,440 £55,867

Single Payment (£200/ha) £16,000 £16,000 £11,200

Net Margin £38,067 £33,240 £33,267

Divisible Surplus £18,067 £13,240 £13,267

Farmers Return £29,034 £26,620 £26,634

Contractors Return £29,034 £27,520 £26,634

Case Study 2 300 Hectares (Combinable) Farmed in Hand

Pre reform rotation: 1/3 1st wheat, 1/3 winter barley, 1/3 OSR

Greening rotation: 95ha 1st wheat, 95ha winter barley, 95ha OSR, 15ha fallow

Not worth opting out of greening

Pre Cap Reform With Greening Opting out of greening

(30% Reduction in SP)

Arable Output £378,000 £359,000 £378,000

Gross Margin £209,500 £199,025 £209,500

Single Payment (£200/ha) £60,000 £60,000 £42,000

Profit (before rent) £134,500 £125,525 £116,500

Case Study 3300 Hectares (High Value Crops) Farmed in hand

Pre reform rotation: 50% 1st wheat, 1/6 sugar beet, 1/6 onion, 1/6 pots

Greening rotation: 143ha wheat, 47ha s - beet, 47ha onions, 48ha pots, 15ha fallow

* Rent paid for fallow land £7425, £495/ha (£200/ac)

Consider renting in ‘green’ area

Pre Cap Reform With Greening Opting out of greening

(30% Reduction in SP)

Renting 15ha

Fallow from 3rd

party*

Arable Output £886,500 £838,425 £886,500 £886,500

Gross Margin £614,200 £580,632 £614,200 £614,200

Single Payment (£200/ha) £60,000 £60,000 £42,000 £63,000

Profit (before rent) £404,200 £370,632 £386,200 £399,775

Degressivity

‘Degressivity’ instead of Capping – obligatory

5% above €150,000

Based on Basic Payment element only (not greening)

Salary offset – not available in UK

Up to 2275 acres – no deduction

4000 acres – £4830 deducted

CAP Reform Workshop

2014 SPS Applications- Action

Entitlements in correct name

Calculate number of Entitlements – sell excess

Woods registered

Online preferred

Check Crop Coding – grassland and margins in ELS

CAP Reform Workshop

Summary

Basic Payments less

Greening – Final details to be confirmed

Simplification?

Mapping features – changes online – one set maps

Farm cropping/policy needs review – opt out/rent in

CAP Reform Workshop