CLA CAP Presentations from Birketts and Strutt & Parker, 3 March 2014


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CLA CAP Update Workshop presentation given by Birketts and Strutt & Parker, Bedfordshire, 3 March 2014

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CLA CAP Presentations from Birketts and Strutt & Parker, 3 March 2014

  1. 1. DOES THE NEW CAP FIT? Rachel Mc Killop, Birketts LLP 3 March 2014
  2. 2. 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.
  3. 3. 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 - you must grow 2 crops. The main crop must not be more than 75% of the land cropped. • More 30 ha of arable land - you 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.
  4. 4. Page 4 GREENING • Ecological Focus Areas (EFA) • More than 15ha arable land you must have 5% EFA on or adjacent to the arable land. • E.g., nitrogen fixing plants, ponds, hedges and buffer strips (not an exhaustive list). • Environmentally Sensitive Grasslands (ESG) • This is a control on permanent grassland at a national level. No “on-farm” control so long as the national level does not fall by more than 5%. • EIA directives and undertakings under agri schemes remain in place. • Exemptions • E.g. organic farms, more than 75% pasture.
  5. 5. Page 5 YOUNG FARMERS • Up to 25% additional payment for young farmers for each of the first five years of the operation of their business. • To qualify as a young farmer you must be:- • A natural person; and • Not more than 40 years old in the year you make your payment application; and • Set up as a farmer or head of holding within the previous five years.
  6. 6. Page 6 ACTIVE FARMER • You have to be an active famer to claim the payments under the new scheme. • To be an active farmer you 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.
  7. 7. Page 7 ELIGIBLE AREAS • Minimum area for a claim will be 5 ha. • Departure from before and designed to get rid of small areas which were perhaps not being used for agricultural purposes in the last scheme e.g. pony paddocks.
  8. 8. 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 the next review. 12% Pillar 2Pillar 1
  9. 9. Page 9 NON-CAPPING MEASURE The spectre of capping was I believe used again in the review so that member states would negotiate on and accept more unpalatable measures. Whilst we have escaped it again this time around there is what is being called a “degressivity” measure which basically means that although payments will not be be capped at a particular level there will be a 5% reduction on payments over. 150,000
  10. 10. Page 10 CASE STUDY • Joe Farmer is a co-owner of 1000 hectares with his brother Ben Farmer. They farm 900 hectares in- hand and let 97 hectares to a neighbour called Mrs Sprout, which is due for renewal and the remaining 3 hectares is let to Ms Toggi. • Joe and Ben are also in the process of 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, who is 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.
  11. 11. Page 11 CASE STUDY Issues arising from the Case Study • Transfer of entitlements when Joe and Ben are buying the additional land. • As you were! – we will continue to include a clause in our sale and purchase agreements which allows for the transferral of the specified amount of entitlements. It will ensure that the relevant parties comply with the cross compliance matters, submission of the RLE1 form and provide indemnities for any loss or reduction in the amount to entitlements transferred. This process has been made a lot easier because it has been agreed that existing entitlements can be rolled over instead of a whole new system being introduced.
  12. 12. Page 12 CASE STUDY Issues arising from the Case Study • Mrs Sprout‟s FBT • We will continue to include clauses in our FBTs which will, in the majority of cases, allow for the tenant to use the entitlements whilst in occupation and to transfer them back to the landlord at the end of the term.
  13. 13. Page 13 CASE STUDY Issues arising from the Case Study • Ms Toggi‟s FBT • Miss Toggi will no longer be able to claim under the new scheme as she only rents 3 ha which is below the minimum eligible area threshold of 5 ha.
  14. 14. Page 14 CASE STUDY Issues arising from the Case Study • Crop diversification • Joe and Ben‟s in-hand land – they will need to grow three different crops on this land. This could be the wheat, rape and beans. • They will need to have 5% of their land under EFA. If DEFRA decide that a nitrogen fixing crop is an EFA then the beans could also count as an EFA. • Cropping licence v FBT – there has been debate about the use of cropping licences since the days of the FVP arrangements. The RPA have never really taken the point but the academic debate has raged. It is probably better from a pure land law point of view and cross compliance control point of view to have an FBT rather than a licence but no doubt licences will be used.
  15. 15. Page 15 CASE STUDY Issues arising from the Case Study • Crop diversification • Harry‟s Land – Harry will only need to grow 2 crops on his land because he is within the 10-30 ha threshold.
  16. 16. Page 16 CASE STUDY Issues arising from the Case Study • Young Farmers 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 as he would not be the head of holding and any split of the business would be heavily scrutinised by the RPA. Unless there are other sound business reasons to restructure the business this additional payment incentive would probably not warrant a restructure of a business either in terms of the success rate or the professional costs involved.
  17. 17. 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?
  18. 18. Page 18 THANK YOU
  19. 19. CAP Reform Workshop Monday 3rd March 2014 Christopher Monk
  20. 20. CAP Reform- Implications for your Farm • Entitlements • Greening Measures • Environmental Stewardship Overlap • Case Studies • Degressivity • Active Farmers & Young Farmers • 2014 SPS Applications CAP Reform Workshop
  21. 21. Entitlements CAP Reform Workshop  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?
  22. 22. 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 Cap Reform Workshop
  23. 23. 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) CAP Reform Workshop
  24. 24. 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 Cap Reform Workshop
  25. 25. Ecological Focus Area Source: European Commission 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
  26. 26. 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 CAP Reform Workshop
  27. 27. 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 CAP Reform Workshop
  28. 28. iii) Permanent Grassland  Defined as grassland- established more than 5 years  Possibly grass margins?  2012/15 reference year – 5% tolerance  Administered at National level CAP Reform Workshop
  29. 29. 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 CAP Reform Workshop 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
  30. 30. Case Study 2 300 Hectares (Combinable) Farmed in Hand  Pre reform rotation: 1/3 1st wheat, 1/3 2nd wheat, 1/3 OSR  Greening rotation: 95ha 1st wheat, 95ha 2nd wheat, 95ha OSR, 15ha fallow  Not worth opting out of greening CAP Reform Workshop 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
  31. 31. Case Study 3 300 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, £475/ha (£200/ac)  Consider renting in ‘green’ area CAP Reform Workshop 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
  32. 32. 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
  33. 33. Other details  Active Farmer rule: „Minimum Level of Agricultural Activity‟ „Negative List‟  Young Farmers’ Scheme: Under 40 years old; Head of Business 25% top-up, for first 5 years, limited area Estimate £22,000 over 5 years? CAP Reform Workshop
  34. 34. 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
  35. 35. 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