Farm Ireland

Thursday 22 March 2018

SFP selling and buying hits high

Entitlement trading continues to soar

Darragh McCullough

Darragh McCullough

Trading in farm entitlements is continuing to accelerate, with auctioneers and brokers already taking bookings from farmers interested in buying and selling entitlements for next year.

This ties in with the latest figures from the Department of Agriculture, which show that a record number of entitlements were traded in the past 12 months.

Since trading in entitlements began in 2006, more than 5,000 farmers have sold nearly €23m in entitlements. But in 2010, nearly €6m-worth of entitlements were traded by farmers.

And it appears that the number of farmers selling off their entitlements is accelerating, while the number of buyers remains relatively static.

In the first four years in which farmers were allowed to trade their farm entitlements, there were similar numbers looking to buy and sell entitlements. However, this trend has been obliterated this year, as the number of farmers looking to sell off their SFP to the highest bidder surged by nearly 70pc. And the number of buyers only increased by 22pc.

There was a 9pc increase in the overall value of entitlements traded, bringing the total to €5,955,536.

The average value of the entitlements traded this year was €289/ha. This was down nearly €25/ha on last year, although it is similar to the values in previous years.

On a county-by-county basis, Cork has always been the biggest seller, in terms of numbers of farmers selling and the total value of entitlements being sold (see table, below).

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How much are my entitlements worth?

There are many farmers who, for one reason or another, decide to sell their farm entitlements. Equally, there are always plenty of farmers looking for entitlements. The question both will ask is obvious -- how much are entitlements worth?

The answer mainly depends on the number of years left under the current SFP system. It is to run as it stands until the end of 2013.

That leaves three payments before the next round of CAP reform kicks in.

Currently, entitlements are being traded at a multiplier of around 1.5. So, for an entitlement worth €240/ha, you'll sell or buy it for €360/ha. But this multiplier will also be affected by 10-20pc by the value of the entitlement.

High-value entitlements are most in demand, while low-value entitlements of €100 or less rarely make more than face value, and in some cases are unsellable.

The smart money for entitlements was probably spent back in 2006, when high-value entitlements were sold for a multiplier of four. Those buyers have now got their money back and every penny they make from here on is money in the bank.

On the face of it, an investment in entitlements for those with the land seems like a no-brainer. What else could you double your money on in three years, with a guaranteed payment?

In addition, it's virtually inconceivable that there will be no entitlement-type system in 2014, when the next version of the CAP comes into force.

What exactly any entitlement you own now will be worth to you then is an unknown, but logic will tell you that those with entitlements in hand will be at the top of the queue.

But Limerick-based agri-consultant David Walsh is less enthusiastic about entitlements as an investment. "Buying an entitlement is not a tax-deductible expense," he says.

"That means you should factor in about 30pc extra on to the cost price before you even start. If you have the money, then you should factor in the interest you are missing out on by leaving it on deposit.

"If you don't have the money, it'll still be costing you interest, so you're losing either way."

Mr Walsh is also cautious about any potential bonuses in future CAP reforms arising from the ownership of entitlements. "Look at what happened to the lads that bought suckler quota," he said.

"It became worthless a few years later, so never say never when it comes to what will happen to the value of entitlements in the future."

A-Z of entitlements

The introduction of the SFP in 2005 brought the concept of 'entitlements' into the direct payments system. Entitlements are not attached to land but are a separate asset belonging to the farmer for whom they were established.

Entitlements may be sold with or without land but could only be sold without land once 80pc had been used in one calendar year. In practice, therefore, payment entitlements could not be sold without land until 2006, when the farmer used 80pc in 2005.

On the other hand, entitlements may only be leased to another farmer if accompanied by an equivalent number of hectares of eligible land. A farmer must declare a hectare of eligible land for each payment entitlement held.

Farmers who wish to sell or buy entitlements, or who wish to change the registration details of entitlement for other reasons, must make an application to the Department before May 15 each year. The registration details of entitlements are normally changed for the following reasons:

  • Inheritance.
  • Gift.
  • Lease (with land).
  • Sale.
  • Division of a holding (and entitlements) into two or more holdings.
  • Setting up of Milk Production Partnerships.
  • Merging of two or more holdings (and entitlements) into one holding.
  • Change of Legal Entity (e.g. from a natural person to a legal person -- limited company).
  • Change of registration details of the herd number (where, for example, a spouse's name is added).

Irish Independent

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