CAP reform adds to this year’s strong land letting demand
Similarly, tillage land rents are as high as in recent years, despite increased input costs eroding farmers’ net profit margins.
“Prices are holding well, and in some cases increasing,” says Ernest Forde of Hodnett Forde, one of Co Cork’s largest land letting agents.
Demand is coming from a number of fronts, from dairy farmers looking to expand, new entrants to dairying, but interestingly, the CAP reform is adding a new dimension this year, especially for bare land (land without entitlements).
This demand is driven by both existing farmers with high entitlements, who are looking to dilute down their basic payment scheme entitlements, and also from new entrants looking to access entitlements under the National Reserve.
Amongst existing farmers, the CAP reforms are of particular interest to those who may have lost land since 2013.
These farmers are looking to rent additional land again in 2015, in order to prevent de facto stacking of their entitlements.
The overall amount of payments an existing farmer will get annually is already set, based on the amount of single farm payment entitlements that farmer owned in 2014.
Meanwhile, the number of entitlements over which this payment is spread is to be based on the lower of the land farmed in 2013 and 2015.
For those farmers who lost rented land since 2013, without taking additional land to compensate for the loss, the value of their entitlements will be concentrated over a smaller number of entitlements, reflecting the smaller number of hectares being farmed in 2015.
Under existing rules, farmers with high value entitlements are set to lose substantially to convergence, the term used to signify the reductions to high value entitlements and increases to low value entitlements, designed to bring all entitlements closer to an average value between now and 2019.
New entrants are also keen to get established early in the 2015 to 2019 CAP reform process, given the track record of funding running out early under the previous entitlements scheme.
However, caution is advised. Artificial splitting of a holding by parents, in order to facilitate the establishment of a new holding to access new entitlements, can be deemed to be a “scission”, such that the existing entitlements held by parents would need to be spread amongst all land, thereby ruling out the option for a new entrant to claim new entitlements, given that they would be allocated entitlements as part of splitting of their parents holding.
This recent clarification seems to be a factor further driving on the demand from new entrants for bare land.
Furthermore, the clarification that any granting of entitlements under the National Reserve in 2015 will preclude that individual from any further allocations is seen as a further incentive to max out any application.
New entrants would also be advised to proceed with caution, given the taxation implications, such as the requirement to register for income tax, and the potential maximising of stock relief.
As the old adage goes, you can buy gold too dear, and so too in respect of land rental, even in the case of the successful grant of entitlements, new entrants should question whether there is any return from renting land at high prices.
Meanwhile, interest in land leasing is growing, according to Ernest Forde, particularly in respect of five-year leasing, with interest coming both from exiting land owners who had previously been letting their land by yearly conacre, and retiring landowners tempted by decent rents, and the prospect of the exemption from income tax.
As always, each individual’s circumstances should be looked at for the best advice.
