Recent articles in the press have commented on leaked drafts of the new single farm payment regulations. The proposed regulations were published officially by the European Commission this week and unsurprisingly are not that different from the leaked documents.
It is up to individual countries to decide exactly how the regulations are to be implemented and so much of the practical detail will not be clear until domestic regulations are produced.
Flat rate payment system continues from 1 January 2014
New entitlements will be issued based on the number of eligible hectares being farmed to those claiming on at least one entitlement in 2011. However the payment will be at a flat rate and not related to the number of entitlements held previously.
There will be a national reserve for new claimants. In allocating entitlements from the reserve, individual countries must give priority to new entrant farmers under 40 and may choose to favour areas of the country where farmers are disadvantaged.
As a result, careful thought will need to be given to any restructuring of farming businesses which might change the identity of the entitlement claimant between 2011 and 2014, as it is by no means certain that claims made to the national reserve will be as successful as claims made by existing entitlement holders. The provisions may also disadvantage those who bought land this year with a contract stating that the outgoing seller can claim the 2011 payment, if the buyer has not claimed against entitlements on other land this year, as all 2011 claims have already been made.
It will be possible to transfer the right to claim the new entitlements in a contract of sale/agreement for lease to one farmer only. It is not clear how this would operate where land is being sold in lots. It would be sensible to seek to vary 2011 contracts so that as far as possible any benefit is transferred to an incoming buyer even though the 2011 claim has been made by the seller, where the buyer has not claimed against any entitlements in 2011.
Eligible hectares can include land also used for non-agricultural uses, as long as those uses 'can be exercised without being significantly hampered by the intensity, nature, duration and timing of the non-agricultural activities'.
Additional environmental payment
An additional payment will be made for environmentally friendly farming practices. As currently drafted, these are obligatory and there will be no opt-out for a farmer who wants to claim the SFP. Organic farms do not have to comply.
- no reduction in permanent pasture and no conversion to permanent pasture constituting more than 5 per cent of the farmer's eligible hectares
- farmers must grow at least three crops on arable land, none of which must account for >70 per cent or <5 per cent of the arable area. This is likely to be a problem for specialist growers and arable farmers particularly in areas such as East Anglia, who will need to make unsatisfactory adjustments to their crop rotations if they are to comply
- maintenance of an 'ecological focus area' of at least 7 per cent of farmland which can include landscape features, fallow land, forested areas and buffer strips. This is a more stringent requirement than at present, particularly since the abolition of setaside. It is also likely that there will have to be yet another rethink of this country's agri-environmental schemes as a result.
One piece of good news is that there will be a simplification of the current cross-compliance regulations.
New rules to prevent payments being made to inactive farmers
No payments to be made where:
- income from the single farm payment is less than 5 per cent of the 'total receipts' from non-agricultural activities in the past year (will not apply to farmers who receive a SFP of less than 5,000 euros/annum); or
- the farmer fails to engage in 'agricultural activity', which means the rearing or growing of agricultural products including breeding and keeping animals, milking and harvesting, maintaining the land in a condition suitable for grazing or cultivation, or carrying out a minimum level of activity as set by the individual countries.
This provision has caused considerable concern amongst those who receive the SFP but also happen to have other more lucrative business interests. Much will depend on how 'total receipts' is interpreted in the domestic legislation and whether this relates to turnover or profit.
Those clients who have decided to reduce their exposure to financial risk on their land by doing only what is required for cross compliance purposes and no more will also have to ensure that they meet the new requirements in respect of minimum farming activity.
Capping of maximum SFP
The maximum payment is to be capped at 300,000 euros/annum with a 70 per cent reduction for the part of any payment above 250,000 euros, 40 per cent reduction from 200,000 to 250,000 and 20 per cent reduction from 150,000 to 200,000 euros.
Before the cap/reduction is calculated, it will be possible to deduct salary costs for the previous year including NI and tax where these relate to employment. It will be up to individual countries to decide how this is implemented in practice. There is no further detail on whether this will require employees to be actively involved in the agricultural operations or just part of the overall farming business, and whether workers employed seasonally or part-time for agricultural work as well as other work will qualify. Past UK court cases suggest that, for example, gamekeepers are unlikely to be agricultural workers.
On the face of it, it seems unlikely that payments to contract farmers will be deemed to be deductible. Farmers' co-operatives such as the limited liability partnerships which have been set up to pool machinery and workers may also suffer.
New entrant young farmers scheme
New farmers under 40 years can apply to receive an extra 25 per cent on top of the basic payment for five years after starting up (which can be retrospective). The payment is to be capped at the average farm size for that country and the claimant must be a person rather than a legal entity such as a trust or partnership.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.