Entitlements trade ‘heats’ up: Selling for up to 2.7 times annual value

Entitlements trading is in full swing with a steady demand for the leasing of Basic Payment Scheme (BPS) entitlements in 2018 reported across the country.

Although it is early in the (trading) season, auctioneers that specialise in leasing out bare entitlements anticipate that demand for leasing will outweigh that for selling – over the coming months.

In addition, a new online system for the transfer of entitlements is expected to be opened by the Department of Agriculture, Food and the Marine in the coming days.

It is hoped that the new system will prevent typical errors that have frequently occurred through the paper application process each year.

In a statement, a department spokesperson confirmed the new system to AgriLand: “This year, the department has moved to process all applications for transfer of entitlements online.

“Farmers, auctioneers and solicitors will be able to apply for entitlements transactions through their agfood.ie account at their own convenience.

“Users should note that online applications will be open very shortly, and that the closing date for transfers is May 15, 2018. The department will shortly have helpful guides and videos available to help farmers to use the online system,” the spokesperson stated.

Entitlements may be transferred from one farmer to another using one of the following methods as appropriate:
  • Inheritance;
  • Gift;
  • Lease;
  • Sale;
  • Scission / division of partnership;
  • Merger/partnership;
  • Change of legal entity;
  • Change of registration details of herd number;
  • Completing the Transfer of Entitlements application online.

A 2018 application that is completed and submitted online to the department by a farmer, or an authorised agent, will be accepted as a valid application provided that all other conditions of the scheme are met.

It is understood that certain mandatory fields that the farmer must complete online will help eliminate processing delays as a result of incomplete details.

Advantages of the online system include: built-in warnings which will help to avoid certain errors in the application; immediate confirmation of the submission of each application; online videos and help-desk assistance for the completion of each application; and it will be possible to reply online to departmental queries on the application.

Other advantages are that applicants will be able to view previous applications and correspondence; plus, they will be able to view ‘positions’ from 2015 to 2019.

Entitlements may be leased with or without land. In that regard it is not necessary to provide details of the land parcels on the Transfer of Entitlements application, as all lease requests shall be processed without land.

However, to receive payment and use an entitlement, the transferee must declare one hectare of land to support each entitlement.

Leased/rented entitlements will revert to the transferor at the end of the relevant scheme year.

In relation to the inheritance of entitlements, these will be transferred according to the will – if there is one – or the laws of intestacy (the condition of the estate of a person that dies without having made a will) if there is no will.

In cases where a deceased person bequeaths land in a will – but has not made any provision for their entitlements within the will – such entitlements or a share of these will transfer with the eligible land unless there is a legal impediment preventing the transfer.

The effective date of transfer in all cases is the BPS closing date.

EU regulations provide that any payment of entitlements unduly allocated to a farmer may be recovered and allocated to the National Reserve.

Sale of entitlements

According to the department, the sale of entitlements without land will be subject to a “clawback” of 20% in 2018 – meaning 20% of the number of entitlements sold.

For example, if a farmer sells 50 entitlements at €100 each; the buyer will receive 40 at €100 each. To be considered as a sale of entitlements with land, one hectare of land must be sold per entitlement.

Although the 20% “clawback” to the National Reserve – introduced last year – represents a significant reduction from its previous level of 50%, traders say the trimmed figure is still contributing to growing demand for leasing.

It is understood that another reason for the interest in leasing is that farmers don’t want to lose entitlements, so they are opting to lease them out until suitable land becomes available on the market.

Under the two-year usage rule, a farmer cannot roll them over. He must use them within a two-year period or risk losing them to the National Reserve.

Steady demand

John McGee, of HMG Agri Entitlements in Kells, Co. Meath, said the ability to lease BPS entitlements without land has completely changed the way farmers look at their entitlements.

An awful lot of farmers are leasing in land every year. I suppose it’s going back to the quota; originally you could lease out quota – up until the last few years you could only sell or buy entitlements.

“It’s had a big impact; it means farmers can lease them out and look for land the following year. It’s a safety net.

“We have a lot of clients looking into leasing rather than selling at the moment. It’s early days yet; but leasing would be very strong,” he said.

Joseph Naughton, of Joseph Naughton Auctioneers based in Ballinasloe, Co. Galway, described demand for the lease of BPS entitlements as “steady“.

“A lot of the people that leased them in 2016 and 2017 are going to lease them again in 2018. The people that have land available are buying them if they can; or they are leasing them out.

“I’ve sold some entitlements at between €150/ha and €200/ha at 2.4 times the [annual activation] value. I’ve also sold ones at between €250/ha and €300/ha at 2.7 times the value. There is a greater demand than there is supply,” he said.

When asked about the impact of the 20% clawback he replied: “All I can say is if there wasn’t a clawback there would be a lot for sale. Since that is the case, and people have the option to lease them, people are leasing them out rather than selling them.

He says the mechanics of the department’s new online system “will take getting used to”.

We had a meeting with the department this week and we’re told that 16,000 farmers are not registered online and have yet to register. In most cases they will have to get an agricultural consultant.

“The system is user-friendly and we don’t envisage any big problems with it. It should eliminate a lot of clerical errors and we just have to move with the times,” he said.