Farm Ireland
Independent.ie

Wednesday 26 July 2017

fresh benefits to signing up for a milk partnership

Milk Production Partnerships can help farmers' expansion plans without putting business at risk

Aisling Meehan

With the country officially 9pc over quota by the end of April, dairy farmers once again find themselves in a quandary. How do they keep expanding to prepare themselves for a time when quotas no longer exist, while at the same time minimising their exposure to superlevies?

As a result, one of the options that many are examining more closely now is the use of Milk Production Partnerships (MPPs) as a means of expanding within the existing regime.

The following is an example of how forming an MPP now can result in a win-win situation for the farmers involved.

Cork dairy farmer John is in his 50s. He had a heart bypass recently and has been advised by his doctors to reduce his workload. He has three children who are still quite young and so he is reluctant to sell the quota and land until he knows whether one of his kids might take over the farming enterprise, which has been in his family for generations.

As well as wanting to remain farming to some extent he needs to remain an active farmer in order to claim his Single Farm Payment and to avail of capital gains tax retirement relief.

David is a young dairy farmer also in Co Cork. David had been farming in partnership with his father, Tom, for the past five years and he has increased cow numbers with the result that he is now short of land and milk quota. Consequently, he was seeking another farmer to join the existing MPP that he had with his father.

Agreed

John met David with his father, Tom, and they all hit it off straight away, John remarking that David reminded him of himself 20 years ago.


It was agreed that John would join David and his father Tom in an MPP for a further five-year period. John would sell his older cows at the mart and contribute the rest of the cows to the partnership.

David would milk all the cows on his family's farm and supply all the milk to the local co-op. John would be responsible for rearing replacement stock which he would do on his farm as well as being responsible for the paperwork for the MPP. Tom would continue in his role of rearing the calves up to four weeks and relief milking the odd weekend.

One of the conditions of registration of an MPP is that the partners must agree to pool all agricultural lands, assets, entitlements and quota at their disposal at the time of the partnership agreement subject to some limited exceptions. In return, the partners must share the profits of the farming partnership. John, David and Tom decided to speak to an agricultural adviser/consultant about preparing an income projection for the proposed partnership. It was on the basis of this income projection and the value of the assets to be contributed to the partnership that the profit-sharing ratio was devised, with 40pc for John, 30pc for David and 30pc for Tom.

A bank account was opened in the name of the partnership and any income in relation to the partnership is paid into this account in accordance with the partnership agreement.

overhaul

This is a broad outline of how an MPP could work in a given set of circumstances. However, it equally could work in the context of a whole range of other circumstances. The MPP system was completely overhauled in 2008 to make it more simplified and flexible. The changes introduced included:

•Off-farm income limits removed for all participants other than new entrants farming in partnership with parents. In the case of the latter, the limit has increased from €30,000 to €40,000.

•Upper age limit of 61 was abolished.

•20km distance between holdings has been abolished.

•Quota ratio limit of 4:1 is no more.

•Previous limit on number of participants abolished.

•More than one new entrant per MPP permitted.

•Now open to non-dairy farmers.

The Food Harvest 2020 Report recommends that any remaining obstacles to partnership formation or other new models of farming should be removed, which gives an indication as to the positive light in which these are viewed.

The principal underlying the success of the MPP model is a relationship of trust between the partners and no amount of legal drafting can save a partnership if this relationship of trust breaks down.

In addition, if a partnership is one by name only and operates in practice as a leasing arrangement, a finding of such by the Revenue Commissioners or the Department of Agriculture could give rise to the withdrawal of benefits available to active farmers.

So if you are approached to enter an MPP with so much per acre for the land and so much per litre of milk quota, you would be advised to think long and hard before you sign up.

If you are interested in finding out more about MPPs, detailed rules are available from Teagasc's dairy partnership registration office at ben.roche@teagasc.ie.

The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, solicitor and tax consultant Aisling Meehan does not accept responsibility for errors or omissions howsoever arising. Contact her at 061 368412

Indo Farming



Top Stories