When I qualified as a solicitor in 2005 I well remember the complexity bought about by the introduction of the Single Farm Payment that cruelly coincided with the start of my new job. There was much debate as to the new drafting required for sale contracts and tenancy agreements to take into account the entitlements to the Single Farm Payment and the requirement that these were transferred correctly or that provision be made for their future transfer. We went on courses, adopted procedures and formalised our drafting. By now, everybody who deals with agricultural land has a good feel for the Single Farm Payment and it is a standard feature rural transactional work.
Fate has dealt me a bitter blow. Whilst on the move from my last firm to Gibson & Co. and whilst my back was turned doing exams things have started to change all over again. No doubt, another suite of drafting will have to be created, argued over and negotiated. Another set of rules will have to be understood and incorporated. We can only hope that the new scheme will have a similar scent to the current scheme so that payments continue to be made to farmers who farm and who have entitlements allocated to them.
The worst thing of all is that we are to be subjected to a slow burn explosion. The proposals (set out in just shy of 1000 pages of draft regulations) were announced by Dacian Ciolos, Commissioner for Agriculture and Rural Development, on 12th October 2011. However there is no guarantee that what is on the table now will ever become reality. By their implementation post 2013 the current proposals will have probably morphed into something entirely different.
To this end, where rural transactional work is undertaken the parties must be quite clear with one another what the mutual intentions are with respect to the entitlements and unambiguous provision must be made for this in the paperwork so that when things do change there is good evidence for what the parties intended. Contracts and leases should certainly contain suitable and robust provision for dispute resolution.
I have identified five aspects of the reforms which are of interest to me as both a solicitor and as a farmer and these are set out briefly below. I think that these will be what have the greatest practical impact.
1. “Golden Ticket”
We can thank Roald Dahl for this soubriquet which seems to have been widely adopted for the eligibility criteria for a farmer to apply for the new entitlements. A farmer will have to have “activated” at least one payment entitlement in 2011 thereby claiming on that entitlement in the current 2011/2012 scheme year. This application is the “Golden Ticket” which secures continued payments post 2013 much as claims during the reference years did for the current scheme.
The clear concern on this is whether a buyer of land or a tenant who does not have entitlements and who has not activated his “Golden Ticket” can ever then obtain claimable entitlements. There certainly won’t be an entitlements shop that he can go to (although there is a provision for young farmers to receive a top up). Under current proposals, the right to apply may be transferred but only on the occasion of the sale or grant of a new lease and only to one farmer. There is no provision allowing it to be split between multiple farmers or tenants so as things stand the “Golden Ticket” can only be transferred by one to one transfers or tenancies.
2. “Active Farmer”
This is another phrase that is going to become normal parlance in the agricultural world. An “Active farmer” is the opposite of a “Sofa Farmer”. “Sofa Farmers” are a cunning and devious breed who can receive the proceeds of a claim whilst doing little or no real farming. To prevent this, only someone who can be defined as an “Active Farmer” will be able to claim post 2013.
The current proposal is that to qualify as an “Active Farmer” the claimant’s claim must be worth at least 5% of that claimant’s total receipts form non agricultural activity in the last fiscal year. This will be difficult for a farmer with, for example, a successful diversification, non – farming job or profitable wind farm. Even a decent lottery win might jeopardise the claim of a previously Active Farmer.
3. Greening
Whilst most farmers are doing a great deal already for the long term benefit of the environment it is now proposed that 30% of the direct payments should be subject to conditions “beneficial for the climate and the environment”. The three conditions are:-
- An arable farmer of more than 3 ha will have to grow at least 3 crops with no single crop to be grown on more than 70% or less than 5% of the arable land.
- Anybody with permanent pasture in 2014 will have to retain 95% of it.
- 7% of a farmers land will have to be maintained as an “ecological focus area”. This phrase is my least favourite of all the Dacian Ciolos speak. With luck this 7% will include what is there already such as woods, hedges, ponds and margins. It is unclear how these focus areas are to interact with land already in stewardship schemes or whether they will be in addition to or within such schemes. I suspect that “ecological focus area” is a fancy way of saying “set aside”.
4. Capping
The UK political will to cap payments is strong and there has been much discussion and commentary on this over the past few years. Much effort has been expended trying to second guess what is going to happen so that farm business structures can be designed to avoid any limiting of payment as a result of capping. Dire warnings have been issued about the risks of creating a sham in order to these maximise payments.
Current proposals set the thresholds as follows:-
E150k – E200k reduced by 20%
E200k – E250k reduced by 40%
E250k – E300k reduced by 70%
There will be no payment over E300k.
There will be no capping on the 30% of direct payment paid for the benefit of the climate and the environment. Another bonus is that the cost of employing staff may be deducted before the application of the cap although this deduction cannot be applied to the services of contractors. The correlation between a large claim and high staff number will in many cases considerably mitigate the effect of capping.
5. Cross Compliance
This will continue to apply but it is likely that the number of requirements will reduce. Good Agricultural and Environmental Condition will be limited in scope and the number of SMRs will be reduced.
I have to admit that none of this, as it stands, will sound too alarming to the majority of farmers. The trick, however, will be to monitor progress and to keep a weather eye on changes to these proposals. By 2013 it could all look very different.
AHR Chrisp
Senior Associate
Gibson & Co. Solicitors Ltd
November 2011