Why the New Entrants Scheme is worthwhile even though milk quotas are set to go in 2015
This is the fifth and final year of the New Entrants Scheme for dairying. Applicants can get up to 200,000 litres of quota under the scheme. But does it still make sense to apply for quota when it is set to be abolished in just over 22 months time?
Many farmers gearing up for milk production in 2015 are purchasing this year's heifer calves with the plan that they will commence milk production when these animals calve down in February 2015. But they won't be allowed to supply milk to a milk processor before April 1, 2015 if they do not have a milk quota.
On the other hand, if a farmer applies for milk quota under the New Entrants Scheme, they are required to start supplying milk by January 1, 2015.
This could cause a problem for those planning to produce milk from stock starting to calve on February 1, 2015.
However, the Department of Agriculture has confirmed that there will be a degree of flexibility on this provided the applicant can show that they have an intention to commence milk from the start of 2015 and that milk production does actually commence before April 1, 2015.
This intent could be borne out by the proof of land and a milking parlour available to start with stock.
Another consideration is finding a guaranteed outlet for this new milk. Some co-ops are very keen on securing new suppliers.
They have been offering incentives to participants in the New Entrants Scheme such as waiving the processing charge for 120pc of the milk supplied under the scheme.
Another co-op has offered to reimburse the processing charge if a new entrant continues to supply the co-op five years after commencing milk production.
However, the best advice is to contact your local co-op for further guidance on this issue.
An added incentive for applying for quota is that it allows a farmer to qualify for dairy equipment and rainwater harvesting scheme grants.
With grant aid of 40pc available for milking machine, refrigeration, storage and rainwater harvesting equipment, up to a maximum of €100,000, these schemes are well worth applying for.
However, an applicant must have at least 50,000 litres of quota or have a letter of acceptance to the new entrants scheme in order to apply for this.
The schemes close on December 31, 2013, while it is expected that acceptance letters for the New Entrants Scheme will be issued by September 2013 to allow new entrants to apply to the grant aid schemes.
Another aspect to consider in planning for future milk production is the availability of stock relief.
The scope of stock relief was curtailed in the last Budget, the main changes of which were as follows:
nA business plan must now be submitted to Teagasc to qualify for 100pc stock relief;
nThe amount of stock relief that a farmer can qualify for in the first year of assessment from 2012 on is limited to €40,000/yr and €70,000 over the course of four years.
For this reason, a new entrant should carefully plan when to become a 'qualifying farmer' in order to maximise the benefits of the tax relief.
Finally, many new entrants are planning to transfer the family farm from their parents to them in order to have enough assets to borrow against for the investment in facilities and stock.
But with the Budget set to take place two months earlier this year than the traditional pre-Christmas date, any transfers should be in place sooner rather than later to avoid any nasty surprise changes in how asset transfers are taxed.
Aisling Meehan Agricultural Solicitors does not accept responsibility for errors or omissions. E-mail firstname.lastname@example.org
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