Farm Ireland

Thursday 22 February 2018

Rich pickings for landlords

This day next year could be the final time you will be applying for the Single Farm Payment scheme as we currently know it. If all the political machines required to get an agreement over the line finally get into gear, a new scheme will be in place for 2014.

But with all the debate and uncertainty about what the final rates per hectare will be and how much will be linked to greening, one key point appears to be going unnoticed. From 2014 the landowner, more so than the farmer, will be in the driving seat in relation to extracting the value of the entitlement.

For example, Jim has 100 entitlements. He's been claiming these on the 50ha he owns and 50ha that he rents. If the rented land disappears in the morning, Jim needs to find at least 50ha to keep claiming his entitlements.

But the plan is that from 2014 every hectare farmed in the country will have an entitlement attached. There will be no more 'naked acres' for Jim to rent to attach his entitlement to.

So if Jim doesn't have land to activate his entitlement in 2014, the entitlement vanishes.

This is what is supposed to be fuelling a 'land grab'. But the plot thickens.

Why would the land owner be interested in taking the land away from Jim? All things being equal, Jim will be paying the going rate for the land. If somebody outbids him, and secures the land for 2014, they will receive the entitlement for the plot. But why would another farmer pay more? Remember that as soon as they give up the land, they also lose the entitlement.

As a result, the entitlement just becomes factored into the rental rate for the land. In other words, it ends up going to the land owner.

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This will anger those who believe the armchair farmer is already creaming too much out of the system. But is this any different from what is happening at the moment anyway?

There's going to be some serious windfalls out of this reform. Namely, the landowners of the 500,000ha of naked acres, who will receive a pot of €135m skimmed off the higher value entitlements. The 10,000 farmers that are currently creaming more than double the national average per hectare will be in the firing line here.

Notice that I don't refer to the farmers receiving any of this pot. Unless they own the land they are farming, it's all going to end up in the rental price and the landowner's pocket anyway.

For my money, I think the Department of Agriculture's advice rings true on this. Don't try to hoover up land on the basis that you are racking up a big entitlement. It may prove impossible to hold, or at best be lost through higher rental prices.

Does this build a new layer of asset value into farmland? Probably. Maybe that's where the smart money is going.

Indo Farming