CLA CAP Reform Overview presentations from Birketts and Strutt & Parker - Swaffham, 7 March 2014

1. DOES THE NEW CAP FIT?
James Dinwiddy, Birketts LLP
7 March 2014

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. 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 must grow 2 crops. The main crop
must not be more than 75% of the land cropped.
• More than 30 ha of arable land 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. Page 4
GREENING
• Ecological Focus Areas (EFA)
• More than 15ha arable land must have 5% EFA on or adjacent to arable
land.
• E.g., nitrogen fixing plants, ponds, hedges and buffer strips (not an
exhaustive list).
• Environmentally Sensitive Grasslands (ESG)
• Control on permanent grassland at a national level.
• EIA directives and undertakings under agri schemes remain in place.
• Exemptions
• E.g. organic farms, more than 75% pasture.

5. Page 5
YOUNG FARMERS
• Up to 25% additional payment for young farmers for each of first five years
of operation.
• To qualify:-
• A natural person; and
• Not more than 40 years old in year of payment application;
• Set up as a farmer or head of holding within previous five years; and
• Up to 90ha

6. Page 6
ACTIVE FARMER
• Must be an “active farmer” to claim the payments under BPS.
• 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. Page 7
ELIGIBLE AREAS
• Minimum area for a claim will be 5 ha.
• End of “pony paddock” claims

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 2018.
12%
Pillar 2Pillar 1

9. Page 9
NON-CAPPING MEASURE
“Degressivity” measure which basically means that although payments will
not be capped at a particular level there will be a 5% reduction on basic
payments over:
150,000

10. Page 10
CASE STUDY
• Joe and Ben Farmer are co-owners of 700 hectares. They farm 600
hectares in hand and let 97 hectares to a neighbour called Mrs Sprout (due
for renewal). The remaining 3 hectares are let to Ms Toggi.
• Joe and Ben are also 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 (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. 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! – sale and purchase agreement should:
• allow for the transfer of the specified amount of entitlements;
• ensure cross compliance;
• cover submission of the RLE1 form;
• contain indemnities for any loss or reduction in the amount of
entitlements transferred;
• Degressivity – reduction in basic payment

12. Page 12
CASE STUDY
Issues arising from the Case Study
• Mrs Sprout’s FBT
• include clause in renewal FBT allowing tenant to use the entitlements
whilst in occupation and to transfer them back to the landlord at the end
of the term.

13. Page 13
CASE STUDY
Issues arising from the Case Study
• Ms Toggi’s FBT
• Miss Toggi only rents 3 ha which is below the minimum eligible area
threshold of 5 ha.
• will therefore no longer be able to claim.

14. Page 14
CASE STUDY
Issues arising from the Case Study
• Crop diversification
• Joe and Ben’s in hand land – must grow three different crops. This could
be the wheat, rape and beans.
• They will need to have 5% of their land under EFA. Beans?
• Cropping licence v FBT

15. Page 15
CASE STUDY
Issues arising from the Case Study
• Crop diversification
• Harry’s Land – only needs to grow 2 crops because within the 10-30 ha
band.

16. Page 16
CASE STUDY
Issues arising from the Case Study
• Young Farmers Scheme 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 qualify as not head of holding;
• any split of the business would be heavily scrutinised by the RPA.

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. Page 18
THANK YOU

19. CAP Reform Workshop
Friday 7th March 2014
Richard Means

20. CAP Reform- Implications for your Farm
• Entitlements
• Greening Measures
• Environmental Stewardship Overlap
• Case Studies
• Degressivity
• 2014 SPS Applications

21. Entitlements
 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. 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

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)

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

25. Ecological Focus Area
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. 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

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

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

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
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. Case Study 2
300 Hectares (Combinable) Farmed in Hand
 Pre reform rotation: 1/3 1st wheat, 1/3 winter barley, 1/3 OSR
 Greening rotation: 95ha 1st wheat, 95ha winter barley, 95ha OSR, 15ha fallow
 Not worth opting out of greening
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. 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, £495/ha (£200/ac)
 Consider renting in ‘green’ area
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. 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. 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

34. 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